Fitch upgrades Palmer Square European Loan Funding 2026-1 notes, removes UCO

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Fitch upgrades Palmer Square notes

Highlights

Fitch upgrades class B to E notes of Palmer Square European Loan Funding 2026-1, with new ratings ranging from AA+sf to BBsf, and affirms class A at AAAsf.
Transaction features a static pool, no reinvestment or discretionary sales, and a remaining weighted average life of 4.7 years as of September 2026 trustee report.
Portfolio strong with weighted average recovery rate of 64.6%, only 0.2% of assets rated CCC+ and below, 8.9% have Negative Outlook, and 95.8% are senior secured obligations.

Rating actions and transaction profile

As reported by Fitch Ratings, the agency upgrades the class B to E notes of Palmer Square European Loan Funding 2026-1 DAC and affirms the class A notes. The updated ratings are AAAsf for class A, AA+sf for class B, A+sf for class C, BBB+sf for class D and BBsf for class E.

Fitch says the transaction is an arbitrage cash flow CLO serviced by Palmer Square Europe Capital Management LLC. It has a static pool, no reinvestment period and no discretionary sales, with a remaining weighted average life of 4.7 years in the latest trustee report dated September 2026.

Criteria update and portfolio strength

The agency says the rating actions incorporate its updated CLOs and Corporate CDOs Rating Criteria published on 1 June 2026. Under that methodology, Fitch calculates the portfolio weighted average recovery rate at 64.6%, which it says has a positive effect on the transaction.

Fitch also points to strong performance in the underlying assets. The latest trustee report shows 0.2% of assets with a Fitch-derived rating of CCC+ and below, while 8.9% of assets carry an Issuer Default Rating with a Negative Outlook under Fitch's calculations, and the deal remains above par.

The portfolio's average credit quality is assessed at B+/B, with a weighted average rating factor of 23.0 under Fitch's latest criteria. Senior secured obligations account for 95.8% of the portfolio, and Fitch says the pool is diversified across obligors, countries and industries, with the top 10 obligor concentration at 8.9% and exposure to the three largest Fitch-defined industries at 27.1%.

Our earlier coverage of Fitch’s criteria-driven rating action on Village Community Development District No. 7’s 2015 special assessment refunding bonds explained that the agency lowered the rating to A- after updating its dedicated tax and revenue bond methodology. We noted that the bonds benefited from strong revenue characteristics and reserve fund liquidity, but remained constrained by limited resilience and a concentrated homeowner assessment base that can increase collection volatility.

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