Regatta XII Funding refinancing notes receive Fitch ratings in U.S. CLO market

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Regatta XII CLO refinancing ratings

Highlights

Fitch Ratings assigned ratings and Stable Outlooks to Regatta XII Funding Ltd.'s refinancing notes classes X-R3 through E-R3, managed by Napier Park Global Capital (US) LP.
The transaction, originally closed in December 2017 and reset in 2019 and 2024, is undergoing its first full refinancing to repay notes and cover fees.
Fitch downgraded class D-1-R3 notes to 'BBB-sf', one notch below model output, citing adverse performance trends, realized losses, and below-average credit enhancement.

Refinancing structure and rating actions

As reported by Fitch Ratings, Regatta XII Funding Ltd.'s refinancing notes classes X-R3, A-R3, B-R3, C-R3, D-1-R3, D-2-R3 and E-R3 have received ratings and Rating Outlooks. The issuer is an arbitrage cash flow collateralized loan obligation managed by Napier Park Global Capital (US) LP.

The transaction originally closed in December 2017 and has since undergone two resets, the first in October 2019 and the second in October 2024. Fitch said this refinancing is the transaction's first refinancing and that it is being executed as a full refinancing, with net proceeds used to repay the refinanced notes in full and cover related fees.

Portfolio quality and tranche pressure

Fitch said the average credit quality of the indicative portfolio is 'B+'/'B', which it described as in line with recent CLOs. That assessment was presented as a neutral rating driver in the agency's review.

For the class D-1-R3 notes, Fitch assigned a 'BBB-sf' rating with a Stable Outlook, one notch below the model implied rating of 'BBBsf'. The agency said the model output does not adequately capture the transaction's recent adverse performance trend, including realized losses in the current portfolio and below-average credit enhancement for that tranche, leaving it more exposed to further credit deterioration, weaker recovery prospects and additional portfolio stress.

Fitch said it therefore downgrades the class D-1-R3 notes by one notch, arguing that an upgrade in line with the model implied rating could be reversed in the near term.

Our earlier coverage of Hainan Rubber’s proposed subordinated perpetual sustainable securities explained how the company planned to refinance offshore debt via notes issued by its majority-owned unit Halcyon Agri and guaranteed on a subordinated basis. We noted Fitch rated the instruments below the issuer rating due to their junior ranking in the capital structure and coupon deferral features, while also outlining the agency’s view on leverage, liquidity and the role of expected state support in funding access.

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