CVC Cordatus Loan Fund IX DAC CLO Reset Notes Assigned Ratings

Table of Contents

Ratings List
Class	Rating	Amount (mil. €)	Interest rate	Credit enhancement (%)
X	AAA (sf)	3.70	Three/six-month EURIBOR plus 0.65%	N/A
A-R	AAA (sf)	263.50	Three/six-month EURIBOR plus 1.04%	38.00
B-1	AA (sf)	33.75	Three/six-month EURIBOR plus 1.70%	28.88
B-2	AA (sf)	5.00	2.05%	28.88
C-R	A (sf)	26.50	Three/six-month EURIBOR plus 2.15%	22.65
D-R	BBB (sf)	32.40	Three/six-month EURIBOR plus 3.25%	15.02
E-R	BB- (sf)	21.25	Three/six-month EURIBOR plus 6.06%	10.02
F-R	B- (sf)	11.50	Three/six-month EURIBOR plus 8.89%	7.32
Sub Notes	NR	55.20	N/A	N/A
EURIBOR--Euro Interbank Offered Rate. NR--Not rated. N/A--Not applicable.

Overview

We have assigned ratings to CVC Cordatus Loan Fund IX DAC's European cash flow CLO reset notes.
The transaction is a reset of an existing transaction with an upsize in note balances. The existing classes of notes are fully redeemed with the proceeds from the issuance of the replacement notes on the reset date on Sept. 16, 2021.
The transaction securitizes a portfolio of primarily senior secured leveraged loans and bonds.

LONDON (S&P Global Ratings) Sept. 16, 2021--S&P Global Ratings today assigned credit ratings to CVC Cordatus Loan Fund IX DAC's class X, A-R, B-1, B-2, C-R, D-R, E-R, and F-R notes. At closing, the issuer also issued unrated subordinated notes (see list above).

The ratings reflect our assessment of:

The diversified collateral pool, which primarily comprises broadly syndicated speculative-grade senior secured term loans and bonds that are governed by collateral quality tests.
The credit enhancement provided through the subordination of cash flows, excess spread, and overcollateralization.
The collateral manager's experienced team, which can affect the performance of the rated notes through collateral selection, ongoing portfolio management, and trading.
The transaction's legal structure, which is bankruptcy remote.
The transaction's counterparty risks, which are in line with our counterparty rating framework.

Under the transaction documents, the rated notes will pay quarterly interest unless there is a frequency switch event. Following this, the rated loan and notes will permanently switch to semiannual payment.

The portfolio's reinvestment period will end approximately 4.4 years after closing, and the portfolio's maximum average maturity date will be eight and a half years after closing.

This transaction has a €1.5 million liquidity facility provided by The Bank of New York Mellon for a maximum of four years with the drawn margin of 2.50%. For the purpose of our cash flows, we have added this amount to the class A notes' balance, since the liquidity facility payment amounts rank senior to the interest payments on the rated notes.

Portfolio Benchmarks
	Current
S&P Global Ratings weighted-average rating factor	2,834.08
Default rate dispersion	674.52
Weighted-average life (years)	4.56
Obligor diversity measure	105.78
Industry diversity measure	19.90
Regional diversity measure	1.22

Transaction Key Metrics
	Current
Total par amount (mil. €)	425.0
Defaulted assets (mil. €)	0
Number of performing obligors	149
Portfolio weighted-average rating derived from our CDO evaluator	B
'CCC' category rated assets (%)	6.74
'AAA' weighted-average recovery (covenanted) (%)	36.82
Covenanted weighted-average spread (%)	3.50
Reference weighted-average coupon (%)	5.00

Workout loan mechanics

Under the transaction documents, the issuer can purchase workout loans, which are bonds or loans the issuer acquired in connection with a restructuring of a related defaulted obligation or credit impaired obligation, to improve its recovery value.

The purchase of workout loans is not subject to the reinvestment criteria or the eligibility criteria. It receives no credit in the principal balance definition or in the par coverage tests, except where the workout loan meets the eligibility criteria with certain exclusions and is either (1) acquired using principal proceeds or (2) designated a declared principal proceeds workout loan, in which case it is accorded defaulted treatment. The cumulative exposure to loss mitigation loans purchased using interest or principal proceeds is limited to 10.0% of target par.

The issuer may purchase workout loans using either interest proceeds, principal proceeds, or amounts in the collateral enhancement account. The use of interest proceeds to purchase workout loans are subject to (i) all the interest and par coverage tests passing following the purchase, and (ii) the manager determining there are sufficient interest proceeds to pay interest on all the rated notes on the upcoming payment date. The use of principal proceeds is subject to passing par coverage tests, and the manager having built sufficient excess par in the transaction so that the aggregate collateral amount is equal to or exceeding the portfolio's reinvestment target par balance after the acquisition. To protect the transaction from par erosion, any distributions received from workout loans purchased with principal proceeds will form part of the issuer's principal account proceeds.

The portfolio is well-diversified, primarily comprising broadly syndicated speculative-grade senior secured term loans and senior secured bonds. Therefore, we have conducted our credit and cash flow analysis by applying our criteria for corporate cash flow CDOs (see "Global Methodology And Assumptions For CLOs And Corporate CDOs," published on June 21, 2019).

In our cash flow analysis, we used the €425 million target par amount, the covenanted weighted-average spread (3.50%), the reference weighted-average coupon (5.00%), and the covenanted weighted-average recovery rates. We applied various cash flow stress scenarios, using four different default patterns, in conjunction with different interest rate stress scenarios for each liability rating category.

Principal transfer test

This transaction features a principal transfer test. Following the expiry of the non-call period, and following the payment of deferred interest on the class F notes, interest proceeds above 101% of the class F interest coverage amount can be paid into the principal account. As this is at the discretion of the collateral manager we have considered scenarios in our cash flow analysis where such amounts are not made.

Under our structured finance sovereign risk criteria, we consider that the transaction's exposure to country risk is sufficiently mitigated at the assigned ratings (see "Incorporating Sovereign Risk In Rating Structured Finance Securities: Methodology And Assumptions," published on Jan. 30, 2019).

We consider that the transaction's documented counterparty replacement and remedy mechanisms adequately mitigate its exposure to counterparty risk under our current counterparty criteria (see "Counterparty Risk Framework: Methodology And Assumptions," published on March 8, 2019).

We consider that the transaction's legal structure and framework is bankruptcy remote, in line with our legal criteria (see "Asset Isolation And Special-Purpose Entity Methodology," published on March 29, 2017).

Following our analysis of the credit, cash flow, counterparty, operational, and legal risks, we believe our ratings are commensurate with the available credit enhancement for the class X, A-R, B-1, B-2, C-R, D-R, and E-R notes. Our credit and cash flow analysis indicates that the available credit enhancement for the class B-1 to E-R notes could withstand stresses commensurate with higher rating levels than those we have assigned. However, as the CLO will be in its reinvestment phase starting from closing, during which the transaction's credit risk profile could deteriorate, we have capped our ratings assigned to the notes.

The class F-R notes' current break-even default rate (BDR) cushion is negative at the 'B-' rating level. Based on the portfolio's actual characteristics and additional overlaying factors, including our long-term corporate default rates, we believe this class is able to sustain a steady-state scenario, in accordance with our criteria (see "Criteria For Assigning 'CCC+', 'CCC', 'CCC-', And 'CC' Ratings," published on Oct. 1, 2012). Our analysis further reflects several factors, including:

The class F-R notes' available credit enhancement is in the same range as that of other CLOs we have rated and that have recently been issued in Europe.
Our BDR at the 'B-' rating level is 25.15% versus a portfolio default rate of 14.14% if we were to consider a long-term sustainable default rate of 3.1% for a portfolio with a weighted-average life of 4.56 years.
Whether the tranche is vulnerable to nonpayment in the near future.
If there is a one-in-two chance for this note to default.
If we envision this tranche to default in the next 12-18 months.

Following this analysis, we consider that the available credit enhancement for the class F-R notes is commensurate with a 'B- (sf)' rating.

The transaction securitizes a portfolio of primarily senior secured leveraged loans and bonds, and it is managed by CVC Credit Partners European CLO Management LLP.

In addition to our standard analysis, to provide an indication of how rising pressures among speculative-grade corporates could affect our ratings on European CLO transactions, we have also included the sensitivity of the ratings on the class X to E-R notes to five of the 10 hypothetical scenarios we looked at in our publication, "How Credit Distress Due To COVID-19 Could Affect European CLO Ratings," published on April 2, 2020. The results shown in the chart below are based on the actual weighted-average spread, coupon, and recoveries.

For the class E-R and F-R notes, our ratings analysis makes additional considerations before assigning ratings in the 'CCC' category, and we would assign a 'B-' rating if the criteria for assigning a 'CCC' category rating are not met.

Environmental, social, and governance (ESG) credit factors

We regard the exposure to ESG credit factors in the transaction as being broadly in line with our benchmark for the sector (see "ESG Industry Report Card: Collateralized Loan Obligations," published March 31, 2021). Primarily due to the diversity of the assets within CLOs, the exposure to environmental credit factors is viewed as below average, social credit factors are below average, and governance credit factors are average. For this transaction, the documents prohibit or limit assets from being related to the following industries: marijuana, tobacco, the manufacturing or marketing of weapons, thermal coal production, predatory payday lending activities, pornography, prostitution, and endangered or protected wildlife trades. Accordingly, since the exclusion of assets from these industries does not result in material differences between the transaction and our ESG benchmark for the sector, no specific adjustments have been made in our rating analysis to account for any ESG-related risks or opportunities.

Related Criteria

Related Research

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'sf' Identifier
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Primary Credit Analyst:	Sandeep Chana, London + 44 20 7176 3923; sandeep.chana@spglobal.com
Secondary Contact:	Emanuele Tamburrano, London + 44 20 7176 3825; emanuele.tamburrano@spglobal.com
Research Contributor:	Shubham Verma, CRISIL Global Analytical Center, an S&P Global Ratings affiliate, Mumbai

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Contact the analysts:

Sandeep Chana
Primary Credit Analyst, London
P.+ 44 20 7176 3923
E.sandeep.chana@spglobal.com
Emanuele Tamburrano
Secondary Contact, London
P.+ 44 20 7176 3825
E.emanuele.tamburrano@spglobal.com
Shubham Verma
Research Contributor, CRISIL Global Analytical Center, an S&P Global Ratings affiliate, Mumbai
P.
E.