Fitch upgrades four Harvest CLO XXIII tranches, removes UCO on class B to F notes

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Fitch upgrades Harvest CLO tranches

Highlights

Fitch upgrades Harvest CLO XXIII DAC's class B-1, B-2, C, and D notes after EUR153 million deleveraging increased credit enhancement since January 2026.
Fitch removes Under Criteria Observation for class B to F notes and affirms class A, E, and F notes, reflecting new CLO rating criteria and higher recovery rates of 65.1%.
Fitch flags downgrade risk if losses or defaults rise, while upgrades remain possible if portfolio credit quality and deleveraging further strengthen loss absorption.

Deleveraging supports tranche upgrades

As reported by Fitch Ratings, Harvest CLO XXIII DAC's class B-1, B-2, C and D notes are upgraded, while the class A, E and F notes are affirmed and the class B to F notes are removed from Under Criteria Observation.

The rating agency says the cash flow CLO, which is mostly made up of senior secured obligations and is managed by Investcorp Credit Management EU Limited, has deleveraged since its last review in January 2026. At the October 2026 payment date, the class A notes have paid down by about EUR153 million, increasing credit enhancement for the senior and mezzanine tranches.

Fitch says that higher credit enhancement helps offset portfolio losses even though the transaction remains 3.1% below par relative to its initial target par, based on the latest trustee report. The rating actions also reflect Fitch's updated CLOs and Corporate CDOs Rating Criteria published on 1 June 2026, which raise the weighted average recovery rate to 65.1% from 58.7% in May 2026.

Portfolio quality and structural risks remain in focus

Fitch assesses the average credit quality of the underlying obligors at 'B'/'B-', with a weighted average rating factor of 27.97 under its latest criteria. Around 21.5% of the portfolio is on Negative Outlook, while senior secured obligations account for 99% of holdings, supporting stronger recovery expectations than second-lien, unsecured or mezzanine assets.

The agency describes the portfolio as diversified across obligors, countries and industries. The top 10 obligors represent 25% of the portfolio, no single obligor exceeds 3.7% of the balance, and exposure to the three largest Fitch-defined industries stands at 34.24%; fixed-rate assets are 5.3%, within the 10% limit.

Fitch says it uses a static transaction approach in its upgrade analysis because several tests are failing, including the Fitch 'CCC' test, making a return to principal reinvestment unlikely. It also notes rating deviations from model-implied ratings for the class C, D and E notes, citing greater concentration risk as the portfolio amortizes, a high share of 'CCC+' or below assets, and limited default-rate cushion at those rating levels.

Looking ahead, Fitch says downgrades may occur if losses exceed initial assumptions because of higher defaults or portfolio deterioration. Upgrades may still occur if portfolio credit quality remains stable and further deleveraging lifts credit enhancement and excess spread available to absorb losses.

In a previous article, we explained how the Janus Henderson ETF NAV update gave investors a benchmark for AAA CLO exposure.

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