DBRS Ratings Limited (DBRS) confirmed its provisional ratings on 32 tranches of three unexecuted, unfunded financial guarantees regarding the Colonnade Global 2017-2, Colonnade Global 2018-1 and Colonnade Global 2018-1X portfolios as follows:
Colonnade Global 2017-2:
-- EUR 816,159,375 Tranche A at AAA (sf)
-- EUR 11,475,000 Tranche B at AA (high) (sf)
-- EUR 6,215,625 Tranche C at AA (sf)
-- EUR 6,789,375 Tranche D at AA (low) (sf)
-- EUR 9,849,375 Tranche E at A (high) (sf)
-- EUR 2,581,875 Tranche F at A (sf)
-- EUR 7,745,625 Tranche G at A (low) (sf)
-- EUR 10,805,625 Tranche H at BBB (high) (sf)
-- EUR 3,251,250 Tranche I at BBB (sf)
-- EUR 4,876,875 Tranche J at BBB (low) (sf)
Colonnade Global 2018-1:
--USD 325,340,000 Tranche A at AAA (sf)
--USD 6,240,000 Tranche B at AA (high) (sf)
--USD 1,750,000 Tranche C at AA (sf)
--USD 2,350,000 Tranche D at AA (low) (sf)
--USD 6,800,000 Tranche E at A (high) (sf)
--USD 1,030,000 Tranche F at A (sf)
--USD 3,340,000 Tranche G at A (low) (sf)
--USD 6,560,000 Tranche H at BBB (high) (sf)
--USD 1,350,000 Tranche I at BBB (sf)
--USD 1,990,000 Tranche J at BBB (low) (sf)
--USD 6,724,402 Tranche K at BB (high) (sf)
Colonnade Global 2018-1X:
--USD 625,940,000 Tranche A at AAA (sf)
--USD 12,010,000 Tranche B at AA (high) (sf)
--USD 3,370,000 Tranche C at AA (sf)
--USD 4,510,000 Tranche D at AA (low) (sf)
--USD 13,080,000 Tranche E at A (high) (sf)
--USD 1,990,000 Tranche F at A (sf)
--USD 6,430,000 Tranche G at A (low) (sf)
--USD 12,620,000 Tranche H at BBB (high) (sf)
--USD 2,600,000 Tranche I at BBB (sf)
--USD 3,830,000 Tranche J at BBB (low) (sf)
--USD 12,936,248 Tranche K at BB (high) (sf)
Each transaction is a synthetic balance-sheet collateralised loan obligation structured in the form of a financial guarantee (the Guarantee). The tranches are collateralised by a portfolio of corporate loans and credit facilities (the Guaranteed Portfolio) originated by Barclays Bank PLC (Barclays or the Beneficiary). The rated tranches are unfunded and the senior guarantee remains unexecuted.
The ratings address the likelihood of a loss under the guarantee on the respective tranche resulting from borrower defaults at the legal final maturity date (29 June 2025 for Colonnade Global 2017-2, 17 May 2026 for Colonnade Global 2018-1 and Colonnade Global 2018-1X). Borrower default events are limited to failure to pay, bankruptcy and restructuring events. The ratings assigned by DBRS to each tranche are expected to remain provisional until the senior guarantee is executed. The ratings do not address counterparty risk nor the likelihood of any event of default or termination events under the agreement occurring.
The confirmations follow an annual review of the transactions and are based on the following analytical considerations:
-- Portfolio performance, in terms of cumulative defaults, and compliance with portfolio profile tests under the replenishment period as of the reporting date of May 2019;
-- Updated default rate, recovery rate and expected loss assumptions for the reference portfolios;
-- The current available credit enhancement (CE) to the rated tranches and capacity to withstand losses under stressed interest scenarios.
The Guarantee is funded and provides protection against principal losses and accrued and unpaid interest incurred in respect of the Guaranteed Portfolio up to a maximum amount to be paid by the corresponding Colonnade Global vehicle (the Guarantor) equal to a specific percentage of the Guaranteed Portfolio notional amount (the Protected Tranche) in a specific currency (the Protection Currency, euros for Colonnade Global 2017-2 and US dollars for Colonnade Global 2018-1 and Colonnade Global 2018-1X).
The transactions are currently within their three-year replenishment period during which the Beneficiary can add new reference obligations or increase the notional amount of existing reference obligations provided that they meet eligibility criteria, portfolio profile tests and are made according to replenishment guidelines. The Guaranteed Portfolio of Colonnade Global 2017-2 currently stands at EUR 921 million, below the maximum Guaranteed Portfolio notional amount of EUR 956 million. The Guaranteed Portfolios of Colonnade Global 2018-1 and 2018-1X currently stand at their maximum guaranteed amounts of USD 398 million and USD 765 million, respectively. For the three transactions, the Guaranteed Portfolios are non-granular, composed mainly of revolving credit facilities, bear a floating interest rate and are mainly unsecured. The facilities in each Guaranteed Portfolio are mainly drawn in the Protection Currency. The composition of the Guaranteed Portfolio in terms of DBRS ratings and DBRS Country Tiers has remained fairly stable since closing.
As of May 2019, there have not been any borrower defaults and the portfolio profile tests allowing further replenishment of the Guaranteed Portfolio have all been met.
The transactions are subject to interest rate risk as the loans in the Guaranteed Portfolios bear floating interest rates which could lead to higher losses under the Guarantee in an upward interest scenario. In addition, up to 2% of each Guaranteed Portfolio amount can be drawn in currencies other than the US dollar, British pound sterling, Japanese yen, Canadian dollar, euro, Swedish krona, Norwegian krone, Danish krone and Australian dollar (Minority Currencies). To mitigate the interest rate risk, additional covenants on spread and the weighted-average payment frequency of the portfolio are in place.
Based on its “Interest Rate Stresses for European Structured Finance Transactions” methodology and incorporating these covenants, DBRS calculated a stressed interest rate index for the obligations denominated in Eligible Currencies of 6.3% for Colonnade Global 2017-2 and 7.3% for Colonnade Global 2018-1 and Colonnade Global 2018-1X, and a stressed interest rate index for the obligations denominated in Minority Currencies of 31.6% for Colonnade Global 2017-2 and 36.6% for Colonnade Global 2018-1 and Colonnade Global 2018-1X.
DBRS calculated the weighted-average recovery rate at each rating level based on the worst-case concentrations in terms of DBRS Country Tier and blend of secured and unsecured obligations permissible under the portfolio profile tests and adjusted its assumptions with the projected loss on the guarantee under stressed interest rate scenarios. For example, at the AAA (sf) stress level the recovery rate was reduced to 21.73% from 25.34% for Colonnade Global 2017-2 and to 33.28% from 37.25% for Colonnade Global 2018-1 and Colonnade Global 2018-1X.
DBRS used its CLO Asset Model to update its expected default rates for the portfolio at each rating level. To determine the credit risk of each underlying reference obligation, DBRS relied on either public ratings or a mapping from Barclays’ internal ratings models to DBRS ratings. The mapping was completed in accordance with DBRS’s “Mapping Financial Institution Internal Ratings to DBRS Ratings for Global Structured Credit Transactions” methodology.
The credit enhancement levels for each of the tranches remains the same as at closing, given that no loss has been recorded to date.
Currency risk is mitigated in these transactions. Although the obligations in the Guaranteed Portfolio can be drawn in various currencies, any negative impact from currency movements is overall neutralised and therefore movements in the foreign exchange rate should not have a negative impact on the rated tranches.
All figures are in euros for Colonnade Global 2017-2 and US dollars for Colonnade Global 2018-1 and 2018-1X unless otherwise noted.
The principal methodology applicable to the ratings is the “Rating Methodology for CLOs and CDOs of Large Corporate Credit”.
DBRS has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology.
An asset analysis was conducted. Due to the inclusion of a revolving period in the transactions, the analysis continues to be based on the worst-case replenishment criteria set forth in the transaction legal documents.
A review of the transaction legal documents was not conducted as the legal documents have remained unchanged since the most recent rating action.
Other methodologies referenced in these transactions are listed at the end of this press release.
These may be found on www.dbrs.com at: http://www.dbrs.com/about/methodologies.
For a more detailed discussion of the sovereign risk impact on Structured Finance ratings, please refer to “Appendix C: The Impact of Sovereign Ratings on Other DBRS Credit Ratings” of the “Rating Sovereign Governments” methodology at: https://www.dbrs.com/research/333487/rating-sovereign-governments.
The sources of data and information used for these ratings include information provided by Barclays.
DBRS did not rely upon third-party due diligence in order to conduct its analysis.
At the time of the initial rating, DBRS was not supplied with third-party assessments. However, this did not impact the rating analysis.
DBRS considers the data and information available to it for the purposes of providing these ratings to be of satisfactory quality.
DBRS does not audit or independently verify the data or information it receives in connection with the rating process.
The last rating action on these transactions took place on 29 June 2018 when DBRS confirmed the provisional ratings on the ten tranches of Colonnade Global 2017-2 and assigned provisional ratings to the 11 tranches of Colonnade Global 2018-1 and Colonnade Global 2018-1X, originally named Colonnade Global 2018-3 and renamed in September 2018 to its current denomination.
The lead analyst responsibilities for these transactions have been transferred to Andrew Lynch.
Information regarding DBRS ratings, including definitions, policies and methodologies, is available on www.dbrs.com.
To assess the impact of changing the transaction parameters on the rating, DBRS considered the following stress scenarios, as compared to the parameters used to determine the rating (the Base Case):
-- Correlation Assumption Used: Base Case Correlation (15% intra-industry and 6% inter-industry), a 20% and 40% increase on the base case correlation parameters.
-- Recovery Rates Used: Base Case Recovery Rate, a 10% and 20% decrease in the Base Case Recovery Rate. Note that the percentage decreases in the recovery rates are assumed for the other stress recovery rate levels.
For Colonnade Global 2017-2, DBRS concludes that a hypothetical increase of the Base Case Correlation by 40% or a hypothetical decrease of the Base Case Recovery Rate by 20%, ceteris paribus, would each lead to a downgrade of the transaction to by up to three notches and a downgrade of the transaction by up to one notch. A scenario combining both an increase in the Correlation by 20% and a decrease in the Base Case Recovery Rate by 10% would lead to a downgrade of the transaction by up to two notches.
For Colonnade Global 2018-1 and Colonnade Global 2018-1X, DBRS concludes that a hypothetical increase of the Base Case Correlation by 40% or a hypothetical decrease of the Base Case Recovery Rate by 20%, ceteris paribus, would each lead to a downgrade of the transaction to by up to three notches and a downgrade of the transaction by up to one notch. A scenario combining both an increase in the Correlation by 20% and a decrease in the Base Case Recovery Rate by 10% would lead to a downgrade of the transaction by up to two notches.
For further information on DBRS historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.
Ratings assigned by DBRS Ratings Limited are subject to EU and US regulations only.
Lead Analyst: Andrew Lynch, Assistant Vice President
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date:
Colonnade Global 2017-2: 30 June 2017
Colonnade Global 2018-1 and Colonnade Global 2018-1X: 29 June 2018
DBRS Ratings Limited
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London EC3M 3BY United Kingdom
Registered and incorporated under the laws of England and Wales: Company No. 7139960
The rating methodologies used in the analysis of this transaction can be found at: http://www.dbrs.com/about/methodologies.
--Master European Structured Finance Surveillance Methodology
--Rating CLOs and CDOs of Large Corporate Credit
--Mapping Financial Institution Internal Ratings to DBRS Ratings for Global Structured Credit
--Interest Rate Stresses for European Structured Finance Transactions
--Legal Criteria for European Structured Finance Transactions
--Operational Risk Assessment for European Structured Finance Servicers
--Operational Risk Assessment for European Structured Finance Originators
A description of how DBRS analyses structured finance transactions and how the methodologies are collectively applied can be found at: http://www.dbrs.com/research/278375.
For more information on this credit or on this industry, visit www.dbrs.com or contact us at email@example.com.