Investing.com -- On Thursday, Fitch Ratings announced an upgrade for Blackrock (NYSE: BLK ) European CLO V DAC, affecting its class C, D, and E notes, while affirming the ratings of other classes. The upgrade reflects increased credit enhancement due to ongoing amortization, with class A notes having amortized by €121.1 million since the previous review in June 2024.
The Blackrock European CLO V DAC, managed by Blackrock Investment Managers (UK) Ltd, is a securitization vehicle primarily composed of senior secured obligations and a mix of other debt types. The fund’s target par was set at €400 million, and it has been actively managed since its inception in May 2018. However, it ceased reinvestment activities in October 2022, which has since limited the manager’s ability to make new investments, effectively rendering the transaction static.
Key factors driving the upgrade include the transaction’s deleveraging process, which has led to increased credit enhancement across the structure. The par loss currently stands at 2.7% of the original target, significantly lower than Fitch’s rating case expectations. The stable outlook is supported by a sufficient cushion against default rates for each note’s rating.
The portfolio’s diversification has been noted, despite an increase in the top 10 obligor concentration to 21.4%, exceeding the test limit. Nonetheless, no single obligor accounts for more than 2.9% of the balance, and industry exposure remains within acceptable limits. The portfolio is also characterized by a higher proportion of fixed-rate assets than allowed by the test limit, reported at 13%.
Fitch assesses the average credit quality of the obligors at ’B’/’B-’, with the weighted average rating factor of the current and stressed portfolio being 27.4 and 28.3, respectively. Senior secured obligations, which make up 90.7% of the portfolio, are expected to have higher recovery rates, with a weighted average recovery rate of 58.7%.
The ratings of class D and F notes are one notch below their model-implied ratings, while class E notes are two notches below, reflecting a lack of default rate cushion and increased macroeconomic risks, including those arising from ongoing trade wars.
Potential downgrades could be triggered by higher than anticipated losses or portfolio deterioration, whereas upgrades could result from stable credit quality and further deleveraging, leading to increased credit enhancement and excess spread to cover potential losses.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.