Fitch Assigns Phoenix Park CLO Limited Final Ratings

(Repeat for additional subscribers)

July 24 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings has assigned Phoenix Park CLO Limited notes final ratings, as follows:

EUR236m class A-1: 'AAAsf'; Outlook Stable

EUR47m class A-2: 'AA+sf'; Outlook Stable

EUR24m class B: 'Asf'; Outlook Stable

EUR23m class C: 'BBBsf'; Outlook Stable

EUR24m class D: 'BB+sf'; Outlook Stable

EUR14m class E: 'B-sf'; Outlook Stable

EUR45.25m subordinated notes: not rated

Phoenix Park CLO Limited is an arbitrage cash flow collateralised loan obligation (CLO). Net proceeds from the notes are being used to purchase a EUR400m portfolio of European leveraged loans and bonds. The portfolio is managed by Blackstone (NYSE: BX - news) /GSO Debt Funds Management Europe Limited. The transaction features a four-year reinvestment period.

KEY RATING DRIVERS

Portfolio Credit Quality

Fitch assesses the average credit quality of obligors as 'B'/'B-'. The agency has public ratings or credit opinions on 51 of 53 obligors in the initial portfolio. The weighted average rating factor (WARF) of the initial portfolio is 33.4.

Above-average Recoveries

The portfolio will comprise a minimum of 90% senior secured obligations. Recovery prospects for these assets are typically more favourable than for second-lien, unsecured and mezzanine assets. Fitch has assigned Recovery Ratings to all but two obligations in the initial portfolio. The weighted average recovery rate (WARR) of the initial portfolio is 72.5%.

Payment Frequency Switch

The notes pay quarterly while the portfolio assets can be reset to a semi-annual basis from quarterly or monthly. The transaction has an interest-smoothing account, but no liquidity facility. Liquidity stress for the non-deferrable class A-1 and A-2 notes, stemming from a large proportion of assets potentially resetting to a semi-annual basis in any one quarterly period, is addressed by switching the payment frequency on the notes to semi-annual in such a scenario, subject to certain conditions.

Limited Interest Rate Risk

No more than 10% of the portfolio may consist of fixed-rate assets; consequently, the majority of this risk is naturally hedged, as all notes are floating-rate. Fitch modelled a 10% fixed-rate bucket in its analysis, which showed that the rated notes can withstand excess spread compression in a rising interest rate environment.

Limited FX Risk

Any non-euro-denominated assets have to be hedged with perfect asset swaps as of the settlement date, limiting foreign exchange risk. The transaction is permitted to invest up to 20% of the portfolio in non-euro-denominated assets.

Participation Agreement

The issuer purchased the initial portfolio from Blackstone/GSO Corporate Funding Limited (BGCF). At closing, the issuer entered into a participation agreement regarding the initial portfolio assets. Under the participation agreement, BGCF transferred the economic risk and benefits of the assets to the issuer while retaining the title of the assets. Immediately after closing, BGCF has begun transferring the title of the assets to the issuer via assignment. The assignment process is expected to last several months.

This arrangement differs from other comparable Fitch-rated CLO transactions since the seller of the initial portfolio is not a bankruptcy-remote warehouse SPV. BGCF is an operating company whose business activities are not limited to dealing with the issuer. BGCF has granted the issuer a fixed charge over the initial portfolio assets while the title is being transferred to the issuer. A fixed charge over financial assets is generally debatable given the lack of control. However, Fitch received a strong legal opinion that the fixed charge in this case is likely to be upheld. Fitch considers that the fixed charge, coupled with the fairly short risk horizon, adequately mitigate the risk of the assets becoming trapped in the insolvency estate of BGCF before the title transfer is completed.

Documentation Amendments

The transaction documents may be amended subject to rating agency confirmation or noteholder approval. Where rating agency confirmation relates to risk factors, Fitch will analyse the proposed change and may provide a rating action commentary if the change has a negative impact on the ratings. Such amendments may delay the repayment of the notes as long as Fitch's analysis confirms the expected repayment of principal at the legal final maturity.

If in the agency's opinion the amendment is risk-neutral from a rating perspective Fitch may decline to comment. Noteholders should be aware that the structure considers the confirmation to be given if Fitch declines to comment.

RATING SENSITIVITIES

A 25% increase in the expected obligor default probability or a 25% reduction in expected recovery rates would lead to a downgrade of up to three notches for the rated notes.

Key Rating Drivers and Rating Sensitivities are further described in the accompanying new issue report, which will shortly be available at www.fitchratings.com.