Symphony CLO 55 receives Fitch final ratings for $400 million leveraged loan vehicle

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Symphony CLO 55 Fitch ratings

Highlights

Fitch Ratings assigned final ratings to Symphony CLO 55, Ltd.'s $400 million CLO, with an average underlying portfolio credit quality of 'B+'/'B' and WARF 22.17.
The portfolio consists of 98.13% first-lien senior secured loans, a weighted average recovery rate of 73.4%, and features standard U.S. CLO structural safeguards.
Portfolio concentration limits allow the top three industries up to 39% and top five obligors up to 12.5%, aligning diversification with recent U.S. CLO issuances.

Transaction structure and rating basis

As reported by Fitch Ratings, the agency has assigned final ratings and Rating Outlooks to Symphony CLO 55, Ltd., an issuer whose secured and subordinated notes fund a broadly syndicated leveraged loan portfolio. Fitch says the transaction is structured with standard U.S. CLO features and credit enhancement levels that support the rated notes despite the underlying pool's highly speculative average credit quality.

The indicative portfolio carries an average credit quality of 'B+'/'B' and a weighted average rating factor of 22.17, in line with recent CLO issuance, according to the agency. Fitch adds that the notes are protected by portfolio tests and structural safeguards, while the manager will run the vehicle to a WARF covenant from a Fitch test matrix.

The portfolio is made up of 98.13% first-lien senior secured loans and has a weighted average recovery rate of 73.4%. Fitch says its analysis also assumes a stressed portfolio that reflects permitted concentration limits and collateral quality tests under the transaction documents.

Portfolio limits and market implications

The CLO has a five-year reinvestment period, with reinvestment criteria that Fitch says are similar to other recent transactions in the sector. The agency used a customized cash flow model to test principal and interest waterfalls and concluded that the rated notes can withstand default and recovery assumptions consistent with their assigned ratings.

Portfolio concentration limits allow the three largest industries to account for as much as 39% of the collateral balance in aggregate, while the top five obligors can make up as much as 12.5% at the initial example matrix point. Fitch says the resulting industry, obligor and geographic diversification remains in line with other recent U.S. CLOs.

For its stress analysis, Fitch also reduces the weighted average life used in the transaction stress portfolio by up to 12 months when WAL covenants exceed six years. In the agency's view, structural and reinvestment conditions after the reinvestment period reduce the portfolio's effective risk horizon during stress periods.

Our earlier coverage of Fitch’s BBB- rating on Hainan Rubber’s proposed subordinated perpetual sustainable securities explained how the instruments’ lower ranking in the capital structure and coupon deferral option affected the rating. We also noted Fitch’s view on the group’s leverage and liquidity profile, as well as the role of parent support in the overall credit assessment.

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