Black Diamond CLO Designated Activity Company

Transcription

1 Presale: Black Diamond CLO Designated Activity Company Primary Credit Analyst: Sandeep Chana, London (44) ; Secondary Contact: Prayagraj C Patel, London ; prayagraj.patel@standardandpoors.com Table Of Contents Million And $89.6 Million Senior Secured Fixed- And Floating-Rate Deferrable Notes And Subordinated Notes Rationale Notable Features Expected Portfolio Characteristics Portfolio Guidelines Portfolio Management Portfolio Manager Recovery Rate Assumptions Payment Priorities Overcollateralization, Interest Coverage, And Additional Tests Sensitivity Analyses JULY 10,

2 Table Of Contents (cont.) Notes Redemption Note Events Of Default Collateral Manager Event Of Default Counterparty Risk Issuer Surveillance Related Criteria And Research Appendix: Other Defined Terms JULY 10,

3 Presale: Black Diamond CLO Designated Activity Company Million And $89.6 Million Senior Secured Fixed- And Floating-Rate Deferrable Notes And Subordinated Notes This presale report is based on information as of July 10, The ratings shown are preliminary. This report does not constitute a recommendation to buy, hold, or sell securities. Subsequent information may result in the assignment of final ratings that differ from the preliminary ratings. Class* Preliminary rating Preliminary amount (mil. ) Interest rate (%) A-1 AAA (sf) Three-month EURIBOR plus 1.30 A-2 AAA (sf) Three-month US$ LIBOR plus 1.40 B-1 AA (sf) Three-month EURIBOR plus 2.10 Credit enhancement (%) Scenario default rate (%) Break-even default rate (%) Break-even default rate cushion (%) B-2 AA (sf) C A (sf) Three-month EURIBOR plus 2.80 D BBB (sf) Three-month EURIBOR plus 3.70 E BB (sf) Three-month EURIBOR plus 5.25 F B (sf) 9.50 Three-month EURIBOR plus M-1 NR N/A N/A N/A N/A N/A M-2 NR N/A N/A N/A N/A N/A *The rating on each class of securities is preliminary as of July 10, 2015, and subject to change at any time. We expect to assign final credit ratings on the closing date, subject to a satisfactory review of the transaction documents and legal opinion, and completion of a corporate overview. Standard & Poor's ratings address timely payment of interest and ultimate payment of principal. The preliminary ratings assigned to the class A and B notes address timely payment of interest and ultimate payment of principal. The preliminary ratings assigned to the class C, D, E, and F notes address the ultimate payment of interest and principal. The payment frequency will switch to semi-annual and the index will switch to six-month EURIBOR (or six-month US$ LIBOR with respect to the class A-2 notes) upon the occurrence of a frequency switch event. Denominated in U.S. dollars. EURIBOR--Euro Interbank Offered Rate. NR--Not rated. N/A--Not applicable. Supplemental Tests Class Overcollateralization (mil. ) Largest industry default test (mil. ) Largest obligor default test (mil. ) A JULY 10,

4 Supplemental Tests (cont.) A B B C N/A D N/A E N/A F N/A N/A--Not applicable. Portfolio Manager Portfolio manager Black Diamond CLO Advisors, LLC Number of CLOs managed or serviced 15 CLO assets under management (bil. $)* 4.10 *As of Dec. 31, CLO--Collateralized loan obligation. Transaction Profile Expected closing date September 2015 Expected effective date Approximately six months after closing, otherwise sooner. period end date October 2019 Noncall period end date October 2017 Stated maturity date October 2029 Total rated amount (mil. equivalent) Total note balance (including the subordinated notes) (mil. equivalent) Note proceeds used to purchase collateral (mil. ) Approximately Collateral Primarily broadly European and U.S. syndicated senior secured loans Structure type Cash flow CLO Structure purpose Arbitrage Management Actively managed Note payment frequency Quarterly, then semi-annually if a frequency switch event occurs First payment date April 2016 Issuer Black Diamond CLO Designated Activity Company Arranger Natixis S.A. Trustee U.S. Bank Trustees Ltd. Custodian, account bank, paying agent, and calculation agent Elavon Financial Services Ltd. CLO--Collateralized loan obligation. Target Portfolio Information Target assets Target par balance (mil. equivalent) Identified collateral (percentage of target par balance; %) Collateral not yet identified (percentage of target par balance; %) Obligors in the identified portfolio (target portfolio) 72 Number of obligors (target portfolio) 99 JULY 10,

5 Target Portfolio Information (cont.) Average-obligor holding (%) (percentage of target portfolio; %) 0.92 (1.01) Largest-obligor holding (%) 2.05 Smallest-obligor holding (%) 0.23 Benchmark statistics Maximum weighted-average maturity 8.00 Modeled weighted-average maturity (years) 6.00 Actual weighted-average maturity (years) 5.67 Portfolio weighted-average rating B Minimum weighted-average spread (%) 4.00 Actual weighted-average spread (%) 4.22 Minimum weighted-average fixed coupon (%) 6.00 Actual weighted-average fixed coupon (%) Not applicable Rationale Standard & Poor's Ratings Services has assigned preliminary credit ratings to Black Diamond CLO Designated Activity Company's (Black Diamond CLO ) class A-1, A-2, B-1, B-2, C, D, E, and F senior secured floating-rate notes. At closing, Black Diamond CLO will also issue unrated class M-1 and M-2 subordinated notes. Black Diamond CLO is a cash flow collateralized loan obligation (CLO) transaction securitizing a portfolio of primarily senior secured loans granted to speculative-grade European and U.S. corporates. Black Diamond CLO Advisors LLC, a special purpose management affiliate of Black Diamond Capital Management LLC (BDCM), will manage the transaction. Under the transaction documents, the rated notes will pay quarterly interest unless there is a frequency switch event (discussed below). Following this, the notes will permanently switch to semiannual payment. The portfolio's reinvestment period will end approximately four years after closing, and the portfolio's maximum average maturity date will be eight years after closing. At the end of the ramp-up period, we understand that the portfolio will represent a well-diversified pool of corporate credits, with a fairly uniform exposure to all of the credits. Therefore, we have conducted our credit and cash flow analysis by applying our criteria for corporate cash flow collateralized debt obligations (CDOs; see "Update To Global Methodologies And Assumptions For Corporate Cash Flow And Synthetic CDOs," published on Aug. 1, 2014). In our cash flow analysis, we used a portfolio target par amount of a euro equivalent of million, using the covenanted weighted-average spread (4.00%), and the covenanted weighted-average recovery rates at each rating level. Elavon Financial Services Ltd. will be the bank account provider and custodian. At closing, we anticipate that the participants' downgrade remedies will be in line with our current counterparty criteria (see "Counterparty Risk Framework Methodology And Assumptions," published on June 25, 2013). JULY 10,

6 At closing, we understand that the issuer will be bankruptcy-remote under our European legal criteria (see "Europe Asset Isolation And Special-Purpose Entity Criteria--Structured Finance," published on Sept. 13, 2013). The issuer may further directly own issuer subsidiaries. We expect these subsidiaries to comply with our criteria "Methodology For Analyzing Rating Confirmation Requests To Establish Subsidiary Special-Purpose Entities In CDOs," published on Dec. 9, 2009). Following our analysis of the credit, cash flow, counterparty, operational, and legal risks, we believe our preliminary ratings are commensurate with the available credit enhancement for each class of notes. Notable Features Liquidity risk and frequency switch event The notes will pay interest quarterly and incorporate an interest smoothing account. If the transaction's frequency switch mechanism is triggered, the payment frequency on the liabilities switches permanently to semiannual on the next payment date. A frequency switch event occurs if the conditions outlined below are satisfied. In all cases, any U.S. dollar proceeds are converted into euro at the spot rate. Table A Frequency Switch Event Conditions A B C D The proportion of assets which re-set to a semiannual basis over the determination date either equals or exceeds 20% of the collateral principal amount; As long as the class A or B notes remain outstanding, the following ratio is less than 120%: (i) Scheduled and projected interest proceeds that the issuer will receive over the immediately following quarter; and (ii) The class A and B notes' scheduled interest amount due at the end of that quarter, including all senior amounts due under the priorities of payment; As long as the class A and B notes remain outstanding; (i) The sum of scheduled interest and principal proceeds that the issuer is scheduled to receive and accrue that are unpaid in the following quarter exceeds (ii) The class A and B notes' scheduled interest amounts at the end of that quarter, including all senior amounts due under the priorities of payment; or The portfolio manager declares that a frequency switch event has occurred (provided that condition C above is satisfied, as long as the class A and B notes remain outstanding). First period reserve account At closing, the collateral manager expects less than 20% of the asset pool to be assets that pay interest and principal semiannually. To mitigate any liquidity concerns on the first payment date (if the semiannual pay assets do not pay interest by then), the issuer will deposit 1.0 million at closing into a first period reserve account from the collection account. On the first interest payment date, the issuer will transfer these funds into the interest account for distribution in accordance with the priorities of payment. Covenant-lite loans The portfolio manager can purchase up to 30% of non-u.s. dollar denominated covenant-lite loans, and up to 50% of purchases may consist of U.S. dollar denominated covenant-lite loans. These are loans that do not: Contain any financial covenants; or JULY 10,

7 Require the obligor to comply with any maintenance covenant. Amend-to-extend offers Amend-to-extend restructuring agreements on leveraged loans result in an extension of the loans' final maturity. They also often change the margin on the loans. Under the transaction documents, the issuer can accept amend-to-extend offers, as long as: The asset's extended maturity does not fall after the notes' maturity; and The transaction passes the portfolio's documented weighted-average life test after taking the maturity extension into account. Even though we believe the extension of an asset's maturity increases the portfolio's credit risk, we consider that such offers will remain limited. In addition, we believe that the borrower's d credit profile will compensate for the extension of an asset's maturity. Any compensatory fees paid to the issuer for amend-to-extend restructuring will provide additional collateral for the rated notes' benefit. Corporate rescue loans The portfolio manager can purchase corporate rescue loans, which pay interest and principal on a current basis. These loans may be obligations of a debtor in possession (DIP) under U.S. bankruptcy law. The transaction documents will require DIP loans to have a public issue rating from Standard & Poor's. The loans may also be senior secured credit facilities made to an obligor undergoing a restructuring or an insolvency process. These facilities may either: Rank pari passu with the obligor's other senior unsecured debt, as long as upon the enforcement of a security these facilities rank in priority to all other senior secured debt; or Achieve priority over the obligor's other senior secured obligations, otherwise through the grant of a security. For these senior secured credit facilities, the transaction documents will require a public issuer credit rating (ICR), or a credit estimate from Standard & Poor's. As the obligor is likely to be rated 'D' or 'SD' at the time of the purchase, we treat such loans as defaulted obligations until the earlier of: The receipt of a credit estimate; or A public ICR on the restructured obligor. Under the transaction documents, if we do not rate the loans within three months, the principal balance of the assets will be zero. The transaction documents will limit the purchase of corporate rescue loans to 5% of the portfolio. Trading plans The portfolio manager can regroup reinvestments into a trading plan to satisfy the transaction's reinvestment guidelines, even if an individual trade does not independently satisfy the reinvestment guidelines. The transaction documents will: Limit each trading plan to 5% of the portfolio's principal amount; JULY 10,

8 State that the trading plan may not extend beyond 20 business days; Permit only one trading plan at a time; and Prevent the portfolio manager from entering into future trading plans, if a previous plan affected the issuer's compliance with any of the reinvestment guidelines. Foreign exchange risk The transaction benefits from a natural hedge since, at closing, we expect that the amount of US$-denominated liabilities issued by the class A-2 notes will closely match the amount of US$-denominated assets. In accordance with the portfolio profile test limitations described further below, the collateral manager is required to hold a minimum and maximum bucket of 15% and 20% of US$-denominated assets, respectively. At the same time, the issuer will use the notes' issuance proceeds at closing to acquire one European currency call option. This will enable the issuer to receive U.S. dollar proceeds at specified strike prices. The collateral manager may sell or exercise the currency call options on a pre-determined exercise date. If the collateral manager exercises the option, the derivative counterparty would provide the issuer with US$-denominated proceeds. On the following payment date, the issuer would apply these proceeds in line with the priorities of payments. If the issuer does not exercise the currency call options, the issuer may sell them on their respective maturity dates. In our cash flow analysis, we applied various currency stresses to the notes, with different US$ LIBOR or Euro Interbank Offered Rate (EURIBOR) curves and different default biases. Our cash flow analysis also considers various scenarios in which the issuer exercises and/or sells the currency call options. At closing, we anticipate that the derivative counterparty's downgrade remedies will be in line with our current counterparty criteria. Retention requirements At closing, the retention holder (Black Diamond Commercial Finance LLC) in its capacity as originator, purchased a principal amount of the subordinated notes equal to at least 5% of the portfolio target par amount, with the intention of complying with the retention requirements. Black Diamond Commercial Finance LLC agreed to hold its interest in the subordinated notes until the date on which no rated notes are outstanding. Expected Portfolio Characteristics As of June 26, 2015, the issuer had identified a portfolio of a euro equivalent of 260 million of assets, representing 65% of the target par amount. The information and results presented in tables 1 to 6 and charts 1 to 4 reflect the identified portfolio and the expected portfolio composition on the effective date. Table 1 Asset Type Distribution Target portfolio (%) Identified portfolio (%) Senior secured loans JULY 10,

9 Table 2 Fixed- And Floating-Rate Asset Distribution Target portfolio (%) Identified portfolio (%) Floating-rate loan Table 3 Top Obligor Holdings Obligor reference Industry 1 Building and development 2 Chemicals and plastics Standard & Poor's rating Standard & Poor's implied rating CreditWatch/outlook Obligor Cumulative Obligor (%) Cumulative (%) B- N/A N/A B+ N/A N/A Publishing B N/A N/A Utilities B+ N/A N/A Telecommunications B N/A N/A Business equipment and services 7 Aerospace and defense B+ N/A N/A B N/A N/A Health care B+ N/A N/A Business equipment and services B N/A N/A Automotive B N/A N/A N/A--Not applicable. Table 4 Spread And Coupon Distribution --Target portfolio-- --Identified portfolio-- Fixed-rate assets Floating-rate assets Fixed-rate assets Percentage of the portfolio (%) Minimum weighted-average spread/coupon covenant (%) Actual weighted-average spread/coupon (%) Actual weighted-average spread, including EURIBOR/LIBOR floors (%) EURIBOR--Euro Interbank Offered Rate Table Portfolio Weighted-Average Recovery Rate (Based on The Percentage Of Par Value) Rating level Minimum weighted-average recovery rate covenant Identified portfolio recovery rate distribution (based on the percentage of par value; %) Floating-rate assets Target portfolio recovery rate distribution (based on the percentage of par value; %) AAA AA A JULY 10,

10 Table 5 Portfolio Weighted-Average Recovery Rate (Based on The Percentage Of Par Value) (cont.) BBB BB B Table 6 Country Distribution Identified and target portfolio Target portfolio Identified portfolio T&C assessment Sovereign rating Notional amount (mil. ) Notional amount (%) Notional amount (mil. ) Australia AAA AAA Belgium* AAA AA Canada AAA AAA Cyprus AAA B Denmark AAA AAA Finland AAA AA France* AAA AA Germany* AAA AAA Ireland AAA A Israel AA A Italy* AAA BBB Netherlands* AAA AA Norway AAA AAA Spain AAA BBB Sweden* AAA AAA U.K. AAA AAA U.S. AAA AA *Unsolicited ratings Notional amount (%) JULY 10,

11 Chart 1 JULY 10,

12 Chart 2 JULY 10,

13 Chart 3 JULY 10,

14 Chart 4 Portfolio Guidelines On the effective date, we consider that the portfolio will comprise primarily euro- and US$-denominated senior secured loans granted to broadly syndicated speculative-grade European corporate borrowers. The portfolio's effective date and reinvestment guidelines will comply with the transaction's portfolio profile limitations (see table 7). For the purpose of calculating any of the portfolio profile tests, the issuer in all cases will convert any US$-denominated proceeds into euro at the initial rate of exchange. Table 7 Collateral Pool Guidelines Type of obligation Limit (percentage of collateral pool; %) Maximum single obligor of senior secured loans (five execeptions up to 2.5%) 2.0 Maximum single obligor of senior unsecured, second lien, mezzanine loans and high yield bonds 1.5 Maximum single obligor 2.5 Maximum obligors domiciled in countries or jurisdictions rated below 'A-' by Standard & Poor's 10.0 Maximum single industry (two exceptions of up to 15.00%, one exception of up to 22.00%) JULY 10,

15 Table 7 Collateral Pool Guidelines (cont.) Maximum participations 5.0 Maximum corporate rescue loan obligations 5.0 Maximum delayed drawdown collateral obligations and revolving collateral obligations 10.0 Maximum rated 'CCC+' or lower 7.5 Maximum current pay obligations 2.5 Minimum U.S. dollar obligations 15.0 Maximum U.S. dollar obligations 20.0 Maximum fixed-rate collateral obligations 10.0 Minimum senior secured loans 90.0 Maximum unsecured, second lien, mezzanine loans, and high yield bonds 10.0 Maximum currency hedge obligations 30.0 Maximum unhedged obligations 2.5 Maximum bridge loans 3.0 Maximum covenant-lite loans (only with respect to U.S. dollar obligations) 50.0 Maximum covenant-lite loans (other than U.S. dollar obligations 30.0 Maximum long-dated obligations 0.0 Maximum structured finance securities 0.0 Maximum synthetic exposure 0.0 Maximum project finance loans 2.5 Maximum obligations derived from another NRSRO rating 10.0 Maximum PIK obligations 5.0 PIK--Payment-in-kind. NRSRO--Nationally Recognized Statistical Rating Organizations. Portfolio Management Under the transaction documents, certain conditions will be satisfied upon the reinvestment of principal proceeds (see tables 8 and 9). For the purpose of calculating any of the reinvestment conditions, including with respect to compliance with initial par amounts adjusted for the amortized note balance and new issuance, any U.S. dollar proceeds will be converted into euro at the initial rate of exchange. Table 8 Summary Of Trading Conditions During Period Conditions to reinvest proceeds from each type of assets sold/received Overcollateralization tests New asset minimum par amount Standard & Poor's CDO Monitor test Concentration limitations Collateral quality test New asset with an equal or a higher rating New asset with the same or a shorter maturity Discretionary Not less than 100% of the principal balance of assets sold* No No JULY 10,

16 Table 8 Summary Of Trading Conditions During Period (cont.) Credit impaired Not less than 100% of the sale proceeds of assets sold* No No Credit d Not less than 100% of the principal balance of assets sold* No No Defaulted (including recovery on defaulted assets) Passing before and after Not less than 100% of the sale proceeds of assets sold* No No Unscheduled principal (including recoveries) Not less than 100% of the principal balance of asset generating proceeds* No No Scheduled principal Not less than 100% of the principal balance of asset generating proceeds* No No *Alternatively, if the aggregate collateral balance of the portfolio is greater than or equal to the initial par balance, adjusted for amortized note balance and new issuance (in all cases, converting U.S. dollar-denominated proceeds into euro at the initial exchange rate). Table 9 Summary Of Trading Conditions After Period Conditions to reinvest proceeds from each type of assets sold/received Overcollateralization tests New asset minimum par amount Standard & Poor's CDO Monitor test Concentration limitations Collateral quality test New asset with an equal or a higher rating New asset with the same or a shorter maturity Discretionary not allowed Credit impaired Passing before and after Not less than 100% of the sale proceeds of assets sold Not required Yes Yes Credit d Passing before and after Not less than 100% of the principal balance of assets sold Not required Yes Yes Defaulted (including recovery on defaulted assets) not allowed Equity not allowed JULY 10,

17 Table 9 Summary Of Trading Conditions After Period (cont.) Unscheduled principal Passing before and after Not less than 100% of the principal balance of asset generating unscheduled principal proceeds Not required Yes Yes Scheduled principal not allowed In certain instances, the issuer may use US$-denominated proceeds to purchase euro-denominated obligations and euro-denominated proceeds to purchase US$-denominated obligations. In such cases, the issuer must ensure that in addition to satisfying all reinvestment conditions mentioned above, the aggregate collateral balance of the portfolio (whereby any US$-denominated balances are converted into euro at the spot rate of exchange) is equal to or greater than the initial par balance, adjusted for the amortized note balance and new issuance (whereby any US$-denominated balances are converted into euro at the initial rate of exchange). The collateral quality tests will include: The CDO monitor test; The S&P minimum weighted-average recovery rate test; The minimum weighted-average spread test; and The weighted-average life test. For the purpose of calculating any of the collateral quality tests, the issuer in all cases will convert any US$-denominated proceeds into euro at the initial rate of exchange. At any time during the reinvestment period, to determine its compliance with the S&P CDO Monitor test, the portfolio manager can change the covenanted levels for the S&P minimum weighted-average recovery rate, and the minimum weighted average spread, as long as the transaction is passing its respective tests at the time. Portfolio Manager The collateral manager and the originator are both affiliates of BDCM. BDCM is a privately held, alternative asset management firm with approximately $7.5 billion in assets under management as of Dec. 31, 2014, and is a registered investment adviser under the Investment Advisers Act. BDCM was formed in 1995 and currently manages CLOs and other structured vehicles, distressed control private equity funds, mezzanine loan funds, and a credit-oriented hedge fund. In July 2011, BDCM Group purchased substantially all of the investment advisory business of GSC Group, Inc., which has managed CLOs and other structured vehicles, distressed control private equity funds, and mezzanine loan funds since BDCM launched its first CLO in The BDCM Group currently manages or services 15 syndicated CLO vehicles (other than the issuer) and managed five CLO transactions that have fully redeemed. JULY 10,

18 Recovery Rate Assumptions The weighted-average recovery rates of both the identified portfolio and the expected portfolio on the effective date are above the covenanted minimum weighted-average recovery rates in the transaction documents. Chart 5 Payment Priorities Under the transaction documents, the assets' interest and principal proceeds will be payable according to separate payment priorities. On each distribution date, the issuer will distribute the interest proceeds in the interest waterfall's order of priority (see table 10). Table 10 Interest Waterfall Priority A Payment Taxes, then the issuer's profit amount. JULY 10,

19 Table 10 Interest Waterfall (cont.) B C D E F G H I J K L M N O P Q R S T U V W X Y Z AA BB CC DD Unpaid trustee fees and expenses up to the senior expense cap plus the balance in the expense reserve account, where any non-euro payments are denominated in euro at the spot rate. Administrative expenses up to the senior expense cap plus the expense reserve account less any amounts in B, in all cases where any non-euro payments are denominated in euro at the spot rate. To expense reserve account (at the managers discretion) up to senior expense cap less any amounts paid in relation to B and C above and any amounts paid out of the expense reserve account, in all cases where any non-euro payments are denominated in euro at the spot rate. (1) Firstly toward the senior collateral management fee, provided that the collateral manager may (x) waive, (y) designate for reinvestment, or (z) defer payment on some or all amounts that would have been payable to the collateral manager under this paragraph, provided that such amount in case of (y) shall (i) be used to purchase additional collateral, or (ii) be deposited in the principal account pending reinvest. In all cases such amounts shall not be treated as unpaid. In the case of (x) or (z); applied toward paragraphs (F) to (W) and (Y) to (DD). (2) Secondly; to the collateral manager for any previously unpaid senior management fees, excluding deferred senior cash manager amounts. Any hedge issuer payments (other than defaulted hedge termination payments). Pro rata and pari passu payment of the class A-1 notes' interest and class A-2 notes' interest. The class B notes' interest Upon failure of class A/B coverage tests to pay in accordance with the note payment sequence*. The class C notes' interest (excluding deferred interest, but including interest on defererd interest). The class C notes' deferred interest. Upon failure of class C coverage tests to pay in accordance with the note payment sequence.* The class D notes' interest (excluding deferred interest, but including interest on defererd interest). The class D notes' deferred interest. Upon failure of the class D coverage tests, to pay in accordance with the note payment sequence.* The class E notes' interest (excluding deferred interest, but including interest on defererd interest). The class E notes' deferred interest. Upon failure of the class E coverage tests to pay in accordance with the note payment sequence*. The class F notes' interest (excluding deferred interest, but including interest on defererd interest). The class F notes' deferred interest. Upon failure of class F coverage tests, to pay in accordance with the note payment sequence.* Upon an effective date rating event, to either (i) redeem the notes in accordance with the note payment sequence,* or (ii) enter into commitments to purchase additional collateral securities, in both cases, until the rating event ends. During the reinvestment period only, if the reinvestment overcollateralization test is failing, either (i) toward the acquisition of additional collateral, or (ii) for the redemption of the rated notes in accordance with the note payment sequence. In either case at an amount equal to the lesser of 50% of the remaining interest proceeds available for payment, or an amount that is sufficient to satisfy the reinvestment par value test. Firstly to the subordinate management fee, and secondly any previously unpaid subordinate management fee, thirdly at the collateral manager's discretion toward any previously waived senior collateral management amounts, and fourthly, for the repayment of any collateral manager advances and any interest thereon. Payment of trustee fees and expenses not paid senior in the waterfall. Payment of administrative expenses not paid senior in the waterfall. Any defaulted hedge termination payments not paid out of the relevant accounts. Transfer the supplemental reserve amount to the supplemental reserve account during the reinvestment period, at the collateral manager's discretion. If the incentive collateral management fee internal rate of return threshold has been met, up to 20% of the remaining proceeds as an incentive collateral management fee. Remaining proceeds to the subordinated notes. JULY 10,

20 Table 10 Interest Waterfall (cont.) *Note payment sequence: First, the class A-1 and A-2 notes on a pro rata and pari passu basis at the applicable redemption price until they fully redeem, followed by the class B notes in the same manner. Then, the class C notes including unpaid interest and deferred interest at the applicable redemption price until they fully redeem, followed by the class D to F notes in the same manner. On each distribution date, the issuer will distribute principal proceeds in the principal waterfall's order of priority (see table 11). Table 11 Principal Waterfall Priority A B C D E F G H I J K L M N O P Q R S T U V Payment Items A to H of the interest waterfall sequentially, but only if the notes are not paid in full. If class A/B coverage tests not satisfied, redemption of the notes in accordance with the note payment sequence, but only if not paid in full under item I of the interest waterfall and only until the class A/B coverage tests are satisfied. Amounts due and payable on the class C notes (excluding deferred interest, but including interest on deferred interest). Only if not paid in full under item J of the interest waterfall and only if the class C notes are the controlling class. Class C deferred interest, but if not paid in full under item K of the interest waterfall and only if the class C notes is the controlling class. If the class C coverage tests are not satisfied, the redemption of the notes in accordance with the note payment sequence, but only if not paid in full under Item L of the interest waterfall and only until the class C coverage test is satisfied. Amounts due and payable on the class D notes (excluding deferred interest, but including interest on deferred interest), but only if not paid in full under item M of the interest waterfall and only if the class D notes are the controlling class. Class D deferred interest, but only if not paid in full under item N of the interest waterfall and only if the class D notes is the controlling class. If the class D coverage tests are not satisfied, redemption of the notes in accordance with the note payment sequence, but only if not paid in full under item O of the interest waterfall and only until the class D coverage test is satisfied. Amounts due and payable on the class E notes (excluding deferred interest, but including interest on deferred interest), but only if not paid in full under item P of the interest waterfall and only if the class E notes are the controlling class. Class E deferred interest, but only if not paid in full under item Q of the interest waterfall and only if the class E notes is the controlling class. If the class E coverage tests are not satisfied, redemption of the notes in accordance with the note payment sequence, but only if not paid in full under item R of the interest waterfall and only until the class E coverage test is satisfied. Amounts due and payable on the class F notes (excluding deferred interest, but including interest on deferred interest), but only if not paid in full under item S of the interest waterfall and only if the class F notes are the controlling class. Class F deferred interest, but only if not paid in full under item T of the interest waterfall and only if the class F notes is the controlling class. If the class F coverage tests are not satisfied, the redemption of the notes in accordance with the note payment sequence, but only if not paid in full under item U of the interest waterfall and only until the class F coverage test is satisfied. Item V of the interest waterfall, but only if not paid in full (effective date rating event). On the special redemption date, at the manager's discretion to pay the rated notes in accordance with the note payment sequence.* (1) During the reinvestment period to purchase substitute collateral obligations, subject to the reinvestment criteria. (2) After the reinvestment period, reinvestment only of unscheduled, sale proceeds, and the sale of credit risk and credit d assets. After the reinvestment period, to redeem the notes in accordance with the note payment sequence* After the reinvestment period, to pay items X through AA of the interest priority of payments if not paid. To any reinvestment noteholder of reinvestment amounts. Subject to incentive collateral management fee internal rate of return threshold having been reached to pay collateral manager 20% of the remaining proceeds. Remaining proceeds to the subordinated notes. JULY 10,

21 Table 11 Principal Waterfall (cont.) *Note payment sequence: First, the class A-1 and A-2 notes on a pro rata and pari passu basis at the applicable redemption price until they fully redeem, followed by the class B notes in the same manner. Then, the class C notes including unpaid interest and deferred interest at the applicable redemption price until they fully redeem, followed by the class D to F notes in the same manner. Currency conversion provisions The issuer will use euro-denominated proceeds to make payments on euro-denominated items. The issuer will use US$-denominated proceeds to make payments on US$-denominated items. If there are insufficient proceeds in the euro payment account for the issuer to meet its required euro payments, the issuer will exchange a sufficient amount of U.S. dollars from the U.S. dollar payment account, if available, into euros at the spot rate of exchange to meet its payment requirements. Similarly, if there are insufficient proceeds in the U.S. dollar payment account for the issuer to meet its required U.S. dollar payments, the issuer will exchange a sufficient amount of euros from the euro payment account, if available, into U.S. dollars at the spot rate of exchange to meet its payment requirements. If there are insufficient amounts in the euro and U.S. dollar payment accounts to fully meet any payments, then the payment shortfalls will be borne proportionately. Overcollateralization, Interest Coverage, And Additional Tests The transaction will benefit from overcollateralization or interest coverage tests, which, if breached, will lead to sequential redemption of the rated notes (see table 12). For the purpose of the overcollateralization tests: For the first three years after default, defaulted assets will be carried at the lower of their recovery rate or market value; Assets rated 'CCC+' or lower above 7.5% of the outstanding portfolio size will be carried at their market value; and Floating-rate assets that trade below 85% and fixed-rate assets that trade below 75% will be carried at their purchase prices. For the purpose of calculating any of the coverage tests, any US$-denominated proceeds will be converted into euro at the spot rate of exchange. Table 12 Overcollateralization, Interest Coverage, And Interest Tests Class Minimum O/C required (%) Minimum I/C required (%) A/B C D E F N/A O/C test N/A O/C--Overcollateralization. I/C- Interest coverage. N/A--Not applicable. JULY 10,

22 Sensitivity Analyses Recovery rate sensitivity In addition to our base-case analysis, we observed additional scenarios in which we made positive and negative adjustments (10% each) to the portfolio's covenanted average recovery rates (see table 13). Table 13 Recovery Rate Sensitivity Resulting rating transition BDR cushion at indicated rating (%) Class Rating level 10% recovery decrease Current 10% recovery decrease A-1 AAA AA A-2 AAA AA B-1 AA A B-2 AA A C A A D BBB BB E BB B F B CCC BDR--Break-even default rate. Correlation sensitivity In addition to our base-case analysis, we assessed the notes' ratings sensitivity to different correlation assumptions by adjusting the intra- and inter-industry correlations (see tables 14 and 15). Table 14 Correlation Sensitivity Correlation Scenario Within industry (%) Between industries (%) Below base-case Base-case equals rating Above base-case Table 15 Correlation Sensitivity Resulting rating transition BDR cushion at indicated rating (%) Class Base-case Below base-case Above base-case Base-case Below base-case Above base-case A-1 AAA AAA AA A-2 AAA AAA AA B-1 AA AA+ AA B-2 AA AA+ AA C A A+ A D BBB BBB+ BBB E BB BB+ BB JULY 10,

23 Table 15 Correlation Sensitivity (cont.) F B B+ B BDR--Break-even default rate. Default biasing In addition to our base-case analysis, we assessed whether the portfolio is sufficiently diversified by biasing defaults toward assets with the highest spreads, or lowest recovery assumptions (see table 16). Table 16 Default Biasing On Highest Spread And Lowest Recovery Highest spread BDR cushion at indicated rating (%) Class Rating level Resulting rating transition Rating Resulting rating transition A-1 AAA AA A-2 AAA AA B-1 AA AA B-2 AA AA C A A D BBB BBB E BB B F B CCC Lowest recovery BDR cushion at indicated rating (%) A-1 AAA AA A-2 AAA AA B-1 AA A B-2 AA A C A BBB D BBB BB E BB CCC F B CCC (4.04) BDR--Break-even default rate. Notes Redemption Final redemption Unless previously redeemed, or purchased and cancelled, each rated class of notes will redeem on the maturity date at their outstanding principal amount. Full redemption at the option of the subordinated noteholders' collateral manager All the rated notes may redeem at the same time at the option of the subordinated noteholders, either: Only after the noncall period, or At any time if, as a result of a change in tax law, tax levied on interest payments from the portfolio's assets exceeds 6% in aggregate. JULY 10,

24 The notes will redeem at their outstanding principal amount from the portfolio's liquidation proceeds, or from the refinanced notes' issuance proceeds. Refinancing of a class or classes of notes at the subordinated noteholders' option Only after the noncall period can an entire class of notes be refinanced (or, in relation to the class A notes, by redemption in whole of the entire class A-1 tranche and/or the entire class A-2 tranche, or in relation to the class B notes, by redemption in whole of the entire class B-1 tranche and/or the entire class B-2 tranche) at the subordinated noteholders' option. The refinanced tranche will redeem at its outstanding principal amount from the refinanced notes' issuance proceeds. Portfolio manager clean-up call After the noncall period, all of the rated notes may redeem at the same time at the portfolio manager's option if the outstanding portfolio's size is below million (or 15% of the target par amount). The notes will redeem at their outstanding principal amount from the portfolio's liquidation proceeds. Redemption following a note tax event The most senior outstanding class of notes, or the subordinated noteholders, may vote to simultaneously redeem all of the notes (if the issuer is unable to change its residency): If a change in tax law makes the payment of principal or interest on any class of notes subject to withholding tax; or If the U.K. or U.S. tax authorities impose a tax on the issuer. Note Events Of Default The following events of default may lead to the acceleration of payments to the rated notes: (i) The issuer fails to pay interest on the class A or B notes when due and payable. Our analysis shows that, under all of our rating scenarios, the class B notes do not fail to receive timely interest payments as long as the class A notes are still outstanding. (ii) The issuer fails to pay any principal when due and payable on any class of notes (each within the related 10-day grace period). (iii) The issuer fails on any payment date to disburse any amounts available in the payment account in accordance with the waterfalls and if this failure continues for five days. (iv) After the effective date, the ratio of the aggregate portfolio size (with defaulted assets carried at their market value) over the class A notes' outstanding principal amount falls below 102.5%. Our analysis shows that the transaction will not breach the 102.5% threshold in any of our rating scenarios. (v) The issuer does not comply with any of its material covenants or warranties under the transaction documents, or any of its documented representations or warranties cease to be correct. The trustee will determine the materiality. (vi) Proceedings are initiated against the issuer under any insolvency law, or a receiver is appointed. JULY 10,

25 (vii) It becomes unlawful for the issuer to perform its obligations under the notes. (viii) The issuer or any of the collateral becomes required to register as an investment company under the Investment Company Act, and if this requirement continues for 45 days. Collateral Manager Event Of Default The following events would constitute a collateral manager event of default, which may result in the removal of the collateral manager: The collateral manager willfully breaches any material covenant of their collateral management agreement. The collateral manager breaches a material provision of their collateral management agreement, which the trustee believes would have a material impact on the noteholders. The collateral manager is wound up or dissolved. The occurrence of a note event of default under sections (i) through to (iii) above as a result of the collateral manager materially breaching its duties. The occurrence of an event of default under section iv. A failure by the collateral manager to comply with any representation, warranty or certificate. The collateral manager, Black Diamond Capital Management, or any officer responsible for the portfolio's management is indicted for a criminal offence materially related to the collateral manager's business. The collateral manager resigns. A collateral manager tax event occurs. The controlling class and the subordinated noteholders will have certain rights to subsequently appoint a successor collateral manager. The occurrence of a collateral manager event of default would not in any way result in the liquidation or acceleration of payments to the rated notes. Counterparty Risk Elavon Financial Services will be the bank account provider and custodian. At closing, we anticipate that the participants' downgrade remedies will be in line with our current counterparty criteria. Natixis S.A. will be the derivative counterparty. At closing, we anticipate that the participants' downgrade remedies will be in line with our current counterparty criteria. Issuer The issuer was incorporated in September 2014 in Ireland as a private limited liability company with unlimited duration. Its authorized share capital is one ordinary share of 1. The issuer has issued one ordinary share, which Maples FS Trustees Ireland Ltd. holds on trust for one or more charities. Under the transaction documents, the issuer will not undertake any business other than: The issuance of the notes; and JULY 10,

26 The entry into and performance of agreements and obligations for the notes. At closing, we understand that the issuer will be bankruptcy-remote under our European legal criteria. Surveillance We will maintain active surveillance on the rated notes until the notes mature or are retired, or until we withdraw our ratings in the transaction. The purpose of surveillance is to assess whether the rated notes are performing within the initial parameters and assumptions applied to each rating category. The issuer is required under the terms of the transaction documents to supply periodic reports and notices to Standard & Poor's to maintain continuous surveillance on the rated notes. Related Criteria And Research Related criteria Global Framework For Assessing Operational Risk In Structured Finance Transactions, Oct. 9, 2014 Update To Global Methodologies And Assumptions For Corporate Cash Flow And Synthetic CDOs, Aug. 1, 2014 Mapping A Third Party's Internal Credit Scoring System To Standard & Poor's Global Rating Scale, May 8, 2014 CDOs Of Project Finance Debt: Global Methodology And Assumptions, March 19, 2014 Europe Asset Isolation And Special-Purpose Entity Criteria, Sept. 13, 2013 Counterparty Risk Framework Methodology And Assumptions, June 25, 2013 Global Derivative Agreement Criteria, June 24, 2013 Global Investment Criteria For Temporary Investments In Transaction Accounts, May 31, 2012 Nonsovereign Ratings That Exceed EMU Sovereign Ratings: Methodology And Assumptions, June 14, 2011 Understanding Standard & Poor's Rating Definitions, June 3, 2009 The Use Of Rating-Based Haircuts In Event Of Default Overcollateralization Tests For CDOs, March 19, 2008 Qualification And Treatment Of Current-Pay Obligations In Global Cash Flow CLOs, July 11, 2007 CDO Spotlight: General Cash Flow Analytics for CDO Securitizations, Aug. 25, 2004 Related research European CLO Performance Index Report Q1 2015: Issuance Exceeds Q Level And Default Rates Decrease, April 22, 2015 European Structured Finance Scenario And Sensitivity Analysis 2014: The Effects Of The Top Five Macroeconomic Factors, July 8, 2014 Global Structured Finance Scenario And Sensitivity Analysis: Understanding The Effects Of Macroeconomic Factors On Credit Quality, July 2, 2014 European CLO 2.0 Structures Evolve In Response To Changing Market Conditions, June 5, 2014 Economic Research: These Green Shoots Will Need A Lot Of Watering, Dec. 12, 2013 Credit Conditions: Europe Sees A Slight Improvement, But Structural Weaknesses Persist, Dec. 9, 2013 Credit FAQ: What Are Credit Estimates And How Do They Differ From Ratings?, April 6, 2011 Standard & Poor's Provides Guidance For Collateral Managers And Trustees Regarding CDO Monitor, Nov. 11, 2009 The CDO Product, March 21, JULY 10,