OHA Credit Funding 11-R secures Fitch ratings for $623 million U.S. CLO

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OHA Credit Funding Fitch ratings

Highlights

OHA Credit Funding 11-R, Ltd. issues $623 million in CLO notes backed by 98.77% first-lien senior secured leveraged loans, managed by Oak Hill Advisors.
Fitch assigns ratings including AAAsf to class X, A-1, and A-2; AAsf to class B; Asf to class C-1; A-sf to class C-2; BBB-sf to D-1 and D-2; and BB-sf to class E.
Fitch notes concentration limits allow top three industries up to 46% and top five obligors 12.5% of the portfolio, with possible downgrades if recovery or default assumptions worsen.

Transaction structure and assigned ratings

As reported by Fitch Ratings, OHA Credit Funding 11-R, Ltd. is an arbitrage cash flow collateralized loan obligation that issues secured and subordinated notes to finance a portfolio of about $623 million, excluding defaulted obligations.

Oak Hill Advisors, L.P. manages the issuer, and the portfolio consists primarily of first-lien senior secured leveraged loans. Fitch assigns new ratings of AAAsf to class X, class A-1 and class A-2, AAsf to class B, Asf to class C-1, A-sf to class C-2, BBB-sf to class D-1 and class D-2, and BB-sf to class E.

Fitch says the indicative portfolio has average credit quality of 'B+'/'B', with a weighted average rating factor of 23.18. The agency also says 98.77% of the portfolio consists of first-lien senior secured loans, while the weighted average recovery rate stands at 73.74%.

Credit metrics and market implications

Fitch says the transaction's concentration limits and collateral quality tests are broadly in line with other recent CLOs. The largest three industries may account for as much as 46% of the portfolio balance in aggregate, while the top five obligors may represent up to 12.5% at the initial example matrix point.

The agency bases its analysis on a stressed portfolio adjusted for permissible concentration limits and uses a proprietary cash flow model to test principal and interest waterfalls. Under its stress scenarios, Fitch says the rated notes withstand default and recovery assumptions consistent with their assigned ratings.

Fitch adds that weaker recovery rates or higher default rates could lead to downgrades across the capital structure, while stronger recoveries and lower defaults could support upgrades for notes below the top rating tier. Upgrade scenarios do not apply to class X, class A-1 and class A-2 because those tranches are already in the highest 'AAAsf' category.

In our earlier article on Fitch’s BBB- rating for Hainan Rubber’s proposed subordinated perpetual sustainable securities, we explained how the planned Halcyon Agri issuance sits lower in the capital structure and allows coupon deferral, which drives the notching versus the issuer rating. We also outlined Fitch’s view of the group’s high leverage and liquidity position, as well as the role of state-linked support and business integration in underpinning the overall credit profile.

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