OCP EURO CLO DAC

Transcription

1 Presale: OCP EURO CLO DAC This presale report is based on information as of March 30, 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. Preliminary Ratings Assigned Class Preliminary rating* Balance (mil. ) Subordination (%) Interest rate A AAA (sf) Three/six-month EURIBOR plus 0.95% B AA (sf) Three/six-month EURIBOR plus 1.75% C A (sf) Three/six-month EURIBOR plus 2.40% D BBB (sf) Three/six-month EURIBOR plus 3.50% E BB (sf) Three/six-month EURIBOR plus 6.30% F B- (sf) Three/six-month EURIBOR plus 8.00% Subordinated notes NR N/A N/A *The rating on each class of securities is preliminary and subject to change at any time. The preliminary ratings assigned to the class A and B notes address timely interest and ultimate principal payments. The preliminary ratings assigned to the class C, D, E, and F notes address ultimate interest and principal payments. The payment frequency switches to semiannual and the index switches to six-month EURIBOR when a frequency switch event occurs. NR--Not rated. N/A--Not applicable. EURIBOR--Euro Interbank Offered Rate. Primary Credit Analyst: Sandeep Chana, London (44) ; sandeep.chana@spglobal.com Secondary Contacts: Yann Marty, London (44) ; yann.marty@spglobal.com See complete contact list on last page(s) MARCH 30,

2 Executive Summary OCP EURO CLO DAC is a European cash flow collateralized loan obligation (CLO) securitizing a portfolio of primarily senior secured euro-denominated leveraged loans and bonds issued by European borrowers. Onex Credit Partners LLC is the collateral manager. Based on provisions in the transaction documents: The transaction will be collateralized by minimum 90% senior secured loans and bonds.a maximum of 10% of the loans in the collateral pool can be fixed-rate. 100% of the identified underlying collateral obligations have credit ratings assigned by S&P Global Ratings % of the identified underlying collateral obligations have recovery ratings issued by S&P Global Ratings. Key Credit Metrics Selected Credit Metrics OCP EURO CLO DAC Three-month average* Total leverage (x) Weighted average cost of debt (%) Subordination ('AAA') (%) Modelled WAS (%) Modelled WAC (%) Excess spread (%) SDR ('AAA') (%) WA portfolio recovery ('AAA') (%) Obligor diversity measure (%)** *Three-month average comprises our rated deals. Total debt/equity. Spread over EURIBOR for all classes, excluding the subordinated notes (if there is a fixed-rate tranche, EURIBOR is subtracted from the fixed coupon in the calculation). WAS minus the weighted average cost of debt. **The effective number of obligors in the underlying collateral, obtained by squaring the result for each obligor and taking the reciprocal of the sum of these squares [i.e., 1/sum()^2]. WA--Weighted average. WAS Weighted average spread. SDR--Scenario default rate. Deal comparison Compared to other broadly syndicated CLOs that we assigned final ratings to in the three months ended March 30, 2017, OCP EURO CLO has: Slightly higher total leverage and higher subordination for 'AAA' tranches. A slightly higher weighted average cost of debt. A lower weighted average spread (WAS) and marginally higher weighted average coupon (WAC), and a lower available excess spread. A marginally higher scenario default rate (SDR) and higher weighted average recovery rate (WARR). MARCH 30,

3 Transaction Timeline Transaction Timeline Expected closing date May 11, 2017 Effective date Approximately six months from closing Non-call period end date May 11, 2019 period end date June 18, 2021 Stated maturity date June 18, 2030 Note payment frequency Quarterly, beginning Dec. 18, Semiannually after a frequency switch event Participants Collateral manager Onex Credit Partners LLC Arranger America Merrill Lynch Trustee Citibank N.A. London Branch Rationale The preliminary ratings assigned to OCP EURO CLO 's class A, B, C, D, E, and F notes reflect our assessment of: The diversified collateral pool, which consists primarily of broadly syndicated speculative-grade senior secured term loans and bonds that are governed by collateral quality and portfolio profile 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 expected to be bankruptcy remote. Under the transaction documents, the rated notes will pay quarterly interest unless there is a frequency switch event, after which the notes will permanently switch to semiannual payment. The portfolio's reinvestment period will end approximately four years after closing. Our preliminary ratings reflect our assessment of the preliminary collateral portfolio's credit quality, which has a weighted-average 'B+' rating. We consider that the portfolio at closing will be well-diversified and primarily comprise 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 collateralized debt obligations (see "Global Methodologies And Assumptions For Corporate Cash Flow And Synthetic CDOs," published on Aug. 8, 2016). In our cash flow analysis, we used the 350 million target par amount, the covenanted weighted-average spread (3.70%), the covenanted weighted-average coupon (5.50%), and the target minimum weighted-average recovery rate at the 'AAA' rating level as indicated by the collateral manager. 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. MARCH 30,

4 Citibank N.A., London Branch is the bank account provider and custodian. At closing, we anticipate that the documented downgrade remedies will be in line with our current counterparty criteria (see "Counterparty Risk Framework Methodology And Assumptions," published on June 25, 2013). Following the application of our structured finance ratings above the sovereign criteria, we consider that the transaction's exposure to country risk is sufficiently mitigated at the assigned preliminary rating levels (see "Ratings Above The Sovereign - Structured Finance: Methodology And Assumptions," published on Aug. 8, 2016). At closing, we consider that the issuer will be bankruptcy remote according to our European legal criteria (see "Europe Asset Isolation And Special-Purpose Entity Criteria--Structured Finance," published on Sept. 13, 2013). 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. Rating Considerations In our analysis, we considered the factors in table 1, among others. Table 1 Rating Considerations Risk Risk description Mitigating factors Reduction in cash flow Excess concentration in certain types of collateral obligations Collateral manager trading performance Divergence of effective date portfolio from preliminary assumptions Exposure to covenant-lite loans Defaults, adverse interest rate movements, and low recoveries can reduce the cash flow generated by the underlying portfolio and affect the issuer's ability to meet its obligations in a timely manner. The collateral manager's ability to invest in certain types of collateral is outlined by the indenture. Larger concentrations in certain obligations can introduce additional risks to the rated notes. During the reinvestment period, the collateral manager can change the underlying portfolio's composition, thus exposing the transaction to potential deterioration in credit enhancement. Most underlying portfolios are not fully purchased by closing. Therefore, there is a risk that the fully ramped-up portfolio at the transaction's effective date will be materially different than the one presented to S&P Global Ratings for its preliminary analysis. The collateral manager can purchase covenant-lite loans (those that do not contain incurrence or maintenance covenants for the benefit of the lending party) for up to a certain percentage of the underlying portfolio (see table 10). Exposure to these types of loans may reduce the transaction's recovery prospects. S&P Global Ratings' quantitative analysis simulates various default patterns and interest rate movements, under various stress scenarios taking into account portfolio characteristics, payment mechanics, covenants, collateral quality tests, and excess spread. S&P Global Ratings' cash flow analysis assumes the underlying portfolio contains the maximum allowable amount of certain types of collateral obligations to stress test the transaction for concentration risk. Examples include: 10% fixed-rate assets and 5.00% current-pay assets. For more detail, please see table 10. The transaction documents require that any collateral obligation sold is replaced with another of equal or higher par value (unless the collateral principal amount is greater than that of the target amount), or that the trade maintains or increases the level of the transaction's overcollateralization. Credit risk, defaulted, and equity securities are exempt from these restrictions. In addition, the indenture requires that each additional purchase satisfy, maintain, or certain additional collateral quality tests. S&P Global Ratings offers collateral managers both a model and formula-based version of its CDO Monitor at closing. This tool is intended to assist the collateral manager in maintaining a similar credit risk and cash flow profile to what was initially presented for our preliminary analysis. For covenant-lite loans that do not have an asset-specific recovery rating, we apply reduced recovery rates in our cash flow analysis (41% under an 'AAA' level of stress versus 50% for a senior secured first-lien loan that is not covenant-lite (in a group A country). MARCH 30,

5 Table 1 Rating Considerations (cont.) Risk Risk description Mitigating factors Long-dated collateral obligation can introduce market value risk A portfolio containing long-dated collateral obligations exposes a transaction to market value risk. To repay the noteholders at the transaction's maturity, the collateral manager will be forced to sell such obligations at the prevailing market price, which may be below par. According to the transaction documents, the collateral manager cannot purchase any long-dated collateral obligations, nor vote in favor of any waiver, modification, or amendment that would extend a collateral obligation's maturity beyond the notes' stated maturity. The weighted average life test must be satisfied following any maturity amendment. Collateral Manager The portfolio manager for the CLO is Onex Credit Partners LLC, which is an affiliate of Onex Corp. The portfolio manager has a track record of more than 15 years managing par, stressed and distressed senior secured loans, and high-yield bonds. As of Dec. 31, 2016, the portfolio manager had approximately $7.5 billion in assets under management. The portfolio manager is registered in the U.S. an investment advisor with the Securities and Exchange Commission. In our opinion, Onex Credit Partners is an experienced portfolio manager with 36 professionals, of which there are 21 investment professionals, averaging approximately 20 years of experience. Onex manages approximately $7.5 billion of assets globally, which include U.S. CLOs, long credit strategies with an emphasis on senior secured loans, and event-driven, stressed, and distressed debt strategies. The team leverages off its extensive global corporate credit platform, in-house research teams, and experienced loan and credit investment professionals. Quantitative Analysis In analyzing this transaction, S&P Global Ratings conducted a quantitative review consisting of two analyses: a portfolio analysis and a cash flow analysis. Portfolio analysis For the portfolio analysis, S&P Global Ratings ran the portfolio presented to us through the CDO Evaluator model, which defaults portions of the underlying collateral based on the default probability and correlation assumptions defined in our criteria. This resulted in a set of SDRs, which represent expected default levels for the portfolio under the different stress scenarios associated with each rating level (see chart 1). MARCH 30,

6 For example, the 'AAA' stress scenario assumes an extreme level of stress, one similar to what was experienced during the Great Depression, while the 'BBB' stress scenario assumes a high, but less severe, level of stress that is more akin to the most recent recession. As a result, the portfolio will experience a higher level of defaults in the 'AAA' stress scenario than the 'BBB' stress scenario. Cash flow analysis For the cash flow analysis, we input the transaction-specific structural features presented to us into Standard & Poor's Cash Flow Evaluator model to generate a base-case set of cash flows. We then subjected these cash flows to various default timing and interest rate stress scenarios to arrive at a break-even default rate (BDR) for each rated class of notes (see chart 2). For each class, the BDR represents the maximum amount of defaults that it can withstand while still being able to pay timely interest and ultimate principal to its noteholders. Classes with higher subordination typically have higher BDRs. MARCH 30,

7 Connecting the portfolio and cash flow analyses For a tranche to achieve a particular rating, it must be able to withstand the level of defaults projected by the CDO Evaluator and still pay timely interest and principal (see chart 3). The results shown in table 2 indicate that the rated notes have sufficient credit enhancement to withstand our MARCH 30,

8 projected default levels. Table 2 Credit Enhancement Class Subordination (%) BDR (%) SDR (%) BDR cushion (%) A B C D E F BDR--Break-even default rate. SDR--Scenario default rate. Supplemental tests We also conduct several out of the model tests to address concentration risks in a portfolio: a largest-industry default test, a largest-obligor default test, and a largest sovereign default test according to "Global Methodologies And Assumptions For Corporate Cash Flow And Synthetic CDOs," published on Aug. 8, 2016, and "Ratings Above The Sovereign - Structured Finance: Methodology And Assumptions," published on Aug. 8, Under these assumptions, the rated notes can withstand the supplemental stress tests at their preliminary rating levels. Sensitivity analysis Finally, several of the assumptions specified in our corporate collateralized debt obligation criteria are stressed to evaluate the sensitivity of the transaction's performance to those parameters. Such stresses include: A negative 10% adjustment to the proposed collateral pool's recovery rates relative to each tranche's weighted average recovery rate. Intra- and inter-industry correlation adjustments as described in table 3. Table 3 Correlation Scenario Within industry (%) Between industries (%) Below base case Base case equals preliminary rating Above base case Collateral Quality Tests And Credit Metrics In addition to the quantitative framework, we produce and review other metrics to assess specific risks inherent in a transaction. Results for the collateral quality tests based on the portfolio provided to us are shown in table 4. Table 4 Collateral Quality Metrics Performing Collateral Test Weighted average Covenant Margin Weighted average life (years) Weighted average spread including floors (%) 3.88 N/A N/A MARCH 30,

9 Table 4 Collateral Quality Metrics Performing Collateral (cont.) Test Weighted average Covenant Margin Weighted average spread excluding floors (%) Standard deviation of spread (%) 0.59 N/A N/A Weighted average EURIBOR floor (%) 0.36 N/A N/A Weighted average fixed coupon (%) N/A 5.50 N/A N/A Not applicable. EURIBOR Euro Interbank Offered Rate. Portfolio Characteristics Metrics based on the portfolio presented to S&P Global Ratings and the level of ramp-up completion are shown in table 5. Table 5 Target Collateral Obligations Target par balance (mil. ) Par balance of identified collateral (mil. ) Par balance of collateral not yet identified (mil. ) S&P Global Ratings' credit rating (% of identified collateral) S&P Global Ratings' implied rating (% of identified collateral) 0.00 Obligors No. of identified obligors 74 Avg. obligor holding (%) 1.35 Largest-obligor holding (%) 2.51 Smallest-obligor holding (%) 0.47 In the portfolio data referenced for this analysis, the issuer had identified approximately 91% of the portfolio's collateral. As the portfolio composition changes, the information and results presented in table 6 and charts 4-7 are also likely to change. Obligor concentration The underlying portfolio presented to S&P Global Ratings for its rating analysis consists of obligors in the industries shown in table 6. Table 6 Top Obligor Holdings As Of March 30, 2017 Notional amount (mil. ) Notional amount (%) Obligor reference Industry S&P Global Ratings' credit rating Obligor Cumulative Obligor Cumulative 1 Media BB Auto components BB Media BB IT services B Software B MARCH 30,

10 Table 6 Top Obligor Holdings As Of March 30, 2017 (cont.) Notional amount (mil. ) Notional amount (%) Obligor reference Industry S&P Global Ratings' credit rating Obligor Cumulative Obligor Cumulative 6 Chemicals BB Machinery B Media B Food products BB Construction Materials B Industry distribution Chart 4 shows the industry distribution in the portfolio. Chart 4 Ratings distribution Chart 5 shows the ratings distribution in the portfolio. MARCH 30,

11 Chart 5 Recovery rating distribution Table 7 and chart 6 below presents a summary of the portfolio S&P Global Ratings' loan recovery rates. Table 7 Target Portfolio WARR Liability rating WARR (%) Modelled (%) AAA (sf) AA (sf) A (sf) BBB (sf) BB (sf) B (sf) WARR--Weighted average recovery rate. MARCH 30,

12 Chart 6 If the collateral manager cannot acquire portfolio collateral during the ramp-up period that has characteristics similar to the unidentified collateral in the target portfolio, the BDRs may decrease and the cushion outlined in the preliminary ratings table the difference between the BDRs and the SDRs could be diminished. If this difference becomes negative, we may not affirm the ratings on the ramp-up end date. Maturity distribution Chart 7 shows the maturity distribution in the portfolio. MARCH 30,

13 Chart 7 Portfolio Investment Guidelines The underlying portfolio will consist primarily of euro denominated senior secured loans and bonds to broadly syndicated corporate borrowers. The collateral portfolio's effective date and reinvestment guidelines are expected to comply with the limitations shown in table 8. Table 8 Collateral Pool Guidelines Type of obligation Limit (%) Minimum secured senior obligations (loans and bonds) 90 Maximum unsecured senior obligations (loans and bonds), second-lien loans, mezzanine obligations and high-yield bonds 10 Maximum senior secured obligations to single obligor (five obligors max 3.0%) 2.5 Maximum unsecured senior loans, second-lien loans, and/or mezzanine obligations and high-yield bonds to a single obligor 1.5 Maximum single obligor 3.0 Maximum non-euro obligations (currency hedge) 30 Maximum covenant-lite (however no more than 20% shall consist of covenant-lite loans with total debt of less than 250 million] Maximum participations MARCH 30,

14 Table 8 Collateral Pool Guidelines (cont.) Type of obligation Limit (%) Maximum current-pay obligations 5 Maximum revolving obligations or delayed-drawdown collateral debt obligations 5 Maximum 'CCC' obligations 7.5 Maximum bridge loans 3 Maximum corporate rescue loans 5 Maximum PIK securities 5 Maximum fixed-rate collateral debt obligations 10 Maximum single S&P industry (four industries 15% each and one industry 17.5%) 12 Maximum notched Moody's rating 10 Floating-rate senior secured bonds 20 Assets paying interest less frequently than semiannually 5 Maximum discount obligations 25 *Covenant-lite loans are assigned lower recovery ratings than similar obligations that require continued compliance with covenants. PIK--Payment in kind. Risk of concentration in certain obligation types S&P Global Ratings considers larger concentrations in the types of obligations shown in table 10 to pose additional risk to the transaction. If the transaction can purchase such collateral obligations, our quantitative analysis would consider the risk associated with such types of obligations (see table 8 above for transaction-specific limitations). Table 9 Risks Of Obligation Types Obligation type Current-pay obligations Deferrable obligations Fixed-rate obligations Long-dated obligations Obligations that pay interest less frequently than quarterly Risk specific to the obligation Our criteria allow transactions to purchase current-pay obligations as long as the collateral manager reasonably believes that the obligor will remain current on all contractual payments (as well as other factors). Due to the increased risk associated with these obligations, they are carried at 'CCC-' in the portfolio analysis, which will increase the SDRs produced by CDO Evaluator. The current pay allowance for this transaction is 5%. Obligations where interest payments may be deferred can result in a discrepancy in the timing of cash inflows and outflows. If this mismatch is significant, it may result in a shortfall in cash available to pay the rated noteholders. Unless the transaction can only purchase permitted deferrable obligations, we conduct our cash flow analysis assuming that the transaction holds the maximum amount of deferrable obligations allowed. The timing differences will be captured in the BDRs generated by Cash Flow Evaluator. There is a 5.0% allowance for deferrable obligations in this transaction as the manager can purchase PIK assets, which are defined as assets that are capable of being deferred. Because interest payments for all of the rated notes are tied to EURIBOR, obligations in the underlying portfolio that pay a fixed rate create exposure to interest rate movements. Should market rates change significantly over the transaction's life, this may reduce excess spread. To account for such risk, we consider the mix of fixed- and floating-rate assets at the minimum and maximum levels. The results are captured in the BDRs generated by Cash Flow Evaluator. Collateral obligations scheduled to mature after the transaction's stated maturity date introduce market value risk, as the collateral manager must sell the obligations at the prevailing market price to pay the rated noteholders. To account for this risk, our cash flow analysis haircuts the par amount of these obligations (10% per year after the transaction's stated maturity), which will lower the BDRs produced by Cash Flow Evaluator. This stress would also be considered for long-dated assets that the transaction can hold after any maturity amendments. Because transactions typically require quarterly interest payments to be made to the noteholders, a portfolio consisting of collateral obligations that pay interest less frequently creates a discrepancy in the timing of cash inflows and outflows. If this mismatch is significant, it may result in a shortfall in cash available to pay the rated noteholders. In order to mitigate the effects of these timing mismatches, the transaction incorporates an interest smoothing account and a frequency switch mechanism, which if triggered, will switch the payment frequency on the rated notes to semi-annual. MARCH 30,

15 Table 9 Risks Of Obligation Types (cont.) Obligation type S&P Global Ratings' credit rating of 'CCC+' or below Risk specific to the obligation Transaction documents typically limit the amount of obligations rated 'CCC+' or below that the collateral manager can purchase. A higher concentration of obligations rated 'CCC+' or lower will increase the SDRs produced by CDO Evaluator. BDR Break-even default rate. SDR--Scenario default rate. EURIBOR--Euro Interbank Offered Rate. PIK--Payment in kind. Under the transaction documents, certain conditions must be satisfied before collateral is bought for or sold from the portfolio (see tables 10 and 11). Table 10 Summary Of Trading Conditions During Period Conditions to reinvest proceeds from each type of assets sold/received Coverage test New asset minimum par amount S&P Global Ratings' 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 APB of all COs maintained or d, or APB of all COs plus cash exceeds RTP maintain or N/A N/A Credit impaired Sale proceeds, or APB of all COs is maintained or increased, or APB of all COs plus cash exceeds RTP maintain or N/A N/A Credit d APB of all COs maintained or d, or APB of all COs plus cash exceeds RTP maintain or N/A N/A Defaulted (including recovery on defaulted assets) Satisfy Sale proceeds, or APB of all COs is maintained or increased, or APB of all COs plus cash exceeds RTP maintain or N/A N/A APB--Aggregate principal balance. CO--Collateral obligation. RTP-- target par. N/A--Not applicable. Table 11 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 Satisfied both before and after reinvestment Sale proceeds Not required * Yes Yes MARCH 30,

16 Table 11 Summary Of Trading Conditions After Period (cont.) 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 Credit d not allowed Defaulted (including recovery on defaulted assets) not allowed Unscheduled principal Satisfied both before and after reinvestment APB of all COs maintained or d Not required * Yes Yes Scheduled principal not allowed *'CCC' obligations must be below 7.5% after reinvestment. To reinvest in unhedged assets APB of all COs plus cash must exceed RTP. Weighted-average life test must be satisfied after reinvestment. APB--Aggregate principal balance. CO--Collateral obligation. RTP-- target par. Note Payment Considerations Overcollateralization, interest coverage, and interest diversion tests The rated notes benefit from certain structural features that require sequential mandatory redemption upon a breach of any overcollateralization or interest coverage test. Additionally, during the reinvestment period, the rated notes benefit from the reinvestment of up to a certain amount of the excess interest proceeds, captured upon breach of the transaction's interest diversion test (see table 12). Table 12 Overcollateralization, Interest Coverage, And Interest Diversion Tests Class Actual O/C (%) Min. O/C required (%) Min. I/C required (%) A/B C D E F N/A O/C test* *The reinvestment O/C test will be satisfied when the class F O/C test is equal to or higher than the specified level. O/C--Overcollateralization. I/C--Interest coverage. N/A--Not applicable. Payment priorities Under the transaction documents, the collateral's interest and principal collections are payable according to separate payment priorities. On each payment date during and after the reinvestment period, unless at the stated maturity or an acceleration following an event of default occurs, proceeds will be distributed in the priority outlined in table MARCH 30,

17 Table 13 Waterfall Payment Priority Priority Interest waterfall Principal waterfall A Taxes and statutory fees Items A-H of the interest waterfall, but only if they are not paid in full B Trustee fees and expenses up to a cap Item I of the interest waterfall to the extent class A/B note's coverage test is cured C Administrative expenses up to a cap Item J of the interest waterfall if it is not paid in full, and only until the class C is the controlling class D Expense reserve account, at the manager's discretion, up to a cap Item K of the interest waterfall if it is not paid in full, and only if class C is the controlling class E F Senior management fee, then the previously due and unpaid senior management fee Hedge counterparty payments (other than defaulted hedge termination payments) Class C notes' coverage tests. If failed, pay according to the note payment sequence until cured* Item M of the interest waterfall if it is not paid in full, and only if class D is the controlling class G Class A notes' interest Item N of the interest waterfall if it is not paid in full, and only if class D is the controlling class H Class B notes' interest Class D notes' coverage tests. If failed, pay according to the note payment sequence until cured* I Class A/B notes' coverage tests. If failed, pay according to the note payment sequence until cured* Item P of the interest waterfall if it is not paid in full, and only if class E is the controlling class J Class C notes' interest (excluding deferred interest) Item Q of the interest waterfall if it is not paid in full, and only if class E is the controlling class K Class C notes' deferred interest Class E notes' coverage tests. If failed, pay according to the note payment sequence until cured* L Class C notes' coverage tests. If failed, pay according to the note payment sequence until cured* Item S of the interest waterfall if it is not paid in full and only if class F is the controlling class M Class D notes' interest (excluding deferred interest) Item T of the interest waterfall if it is not paid in full and only if class F is the controlling class N Class D notes' deferred interest On or after the reinvestment period, class F notes' coverage tests. If failed, pay according to the note payment sequence until cured* O Class D notes' coverage tests. If failed, pay according to the note payment sequence* until cured Item V of the interest waterfall P Class E notes' interest (excluding deferred interest) To make payment of special redemption amount on special redemption date in accordance with note payment sequence, at the election of the collateral manager After the reinvestment period, to redeem the notes according to the note payment sequence* Q Class E notes' deferred interest During the reinvestment period, to purchase collateral obligations at the collateral manager's option. After the reinvestment period, to purchase collateral obligations with unscheduled principal proceeds or sale proceeds from credit risk obligations at the collateral manager's option R Class E notes' coverage tests. If failed, pay according to the note payment sequence until cured* After the reinvestment period to redeem notes in accordance with the note payment sequence S Class F notes' interest (excluding deferred interest) After the reinvestment period, items (W) to (AA) of the interest waterfall T Class F notes' deferred interest Any reinvestment amounts to any reinvesting noteholder U V Class F notes' coverage tests. If failed, pay according to the note payment sequence until cured* Effective date rating event. If continuing, pay according to the note payment sequence until the effective date rating event ceases* To the subordinated notes, up to the internal rate of return threshold is reached Any remaining proceeds to the subordinated noteholders. MARCH 30,

18 Table 13 Waterfall Payment Priority (cont.) Priority Interest waterfall Principal waterfall W X Y Z AA BB CC During the reinvestment period only, if the reinvestment O/C test is not satisfied, to reinvest in new collateral until the reinvestment O/C test is satisfied using to use lesser up to 50% of the available interest proceeds and the amount required to satisfy the test for the following, at the collateral manager's discretion: deposit to the principal account pending reinvestment, or pay the rated notes per the note payment sequence Subordinated management fee then any previously deferred subordinated management fee Uncapped trustee fees and expenses Uncapped administrative expenses Defaulted hedge termination payments Repayment of collateral manager advances To the subordinated notes, until the internal rate of return threshold is reached *Note payment sequence: First, the class A notes until fully redeemed; then the class B notes until fully redeemed; then the class C notes including deferred interest until fully redeemed; then the class D notes including deferred interest until fully redeemed; then the class E notes including deferred interest until fully redeemed; and then the class F notes including deferred interest until they have redeemed. O/C--Overcollateralization. Note redemption circumstances Under the transaction documents, the notes can be redeemed before the stated maturity date of the transaction in the circumstances outlined below (see table 14). Table 14 Note Redemption Redemption events Optional redemption through liquidation Mandatory redemption Refinancing Tax redemption Redemption terms After the non-call period, all classes of notes may be redeemed (in whole, but not in part) on any business day at the direction of the subordinated noteholders' (acting by extraordinary resolution) or originator, controlling class, and/or the portfolio manager.after the non-call period, the rated notes may also be redeemed (in whole, but not in part) on any payment date at the collateral manager's direction if the aggregate collateral balance is less than 20% of the target par amount. If any coverage test is not satisfied, the notes may be redeemed (in whole or in part) on any payment date before their legal final maturity dates. If a mandatory redemption occurs, the issuer uses the available principal and interest proceeds to redeem the notes according to the priority of payments. After the non-call period, the subordinated noteholders (acting by ordinary resolution can instruct for any class of notes to be redeemed (in whole, but not in part), the portfolio manager or the originator, solely from the refinancing proceeds. The issuer can acquire the refinancing proceeds by issuing a replacement class of notes. If a tax event occurs, the controlling or subordinated noteholders (acting by extraordinary resolution) or originator can instruct to redeem any class of notes (in whole, but not in part) on any payment date before its legal final maturity date. Application Of Standard & Poor's CDO Monitor/Compliance With Standard & Poor's CDO Monitor Test Standard & Poor's CDO Monitor is a tool that collateral managers use during the reinvestment period to determine if a particular trade or series of trades increases the risk to the rated liabilities. The CDO Monitor test will be considered passing if the results indicate that the current portfolio produces an SDR that MARCH 30,

19 is equal to or below the transaction's BDR. There is no requirement that the CDO Monitor test be considered after the reinvestment period, or when reinvesting proceeds from the sale of a credit risk or defaulted obligation. For this transaction, the non-model version of CDO Monitor will be used, with option to switch to the model version once. Events Of Default Under certain conditions, the following events of default may result in the acceleration of payments to the preliminary rated notes or the collateral's liquidation: The transaction fails to pay interest, when due and payable, to the class A notes or B notes. The transaction fails to pay principal on any class of notes when due and payable at the stated maturity date or any redemption date. The issuer fails to disburse amounts according to the payment priority within a five-business-day grace period. The class A overcollateralization ratio falls below 102.5% (as defined in the transaction documents, the event of default overcollateralization ratio is calculated without rating-based discounts, but includes defaulted assets carried at their market value). The issuer materially defaults in performance or materially breaches any covenant, which has a material adverse effect on the noteholders (as determined by the trustee) and is not cured within the 30-day cure period. The issuer voluntarily or involuntarily enters bankruptcy. It becomes unlawful for the issuer to perform or comply with one or more of its obligations under the notes. The transaction documents require the issuer to register as an investment company under the Investment Company Act of This requirement continues for a 45-day period. Structural Overview OCP Euro CLO , the issuer, is a special-purpose entity (SPE) that was incorporated as an exempted company with limited liability under the laws of Ireland. The issuer's only purposes are to acquire the collateral portfolio, issue the notes, enter into transaction documents, and engage in certain related transactions. We expect the issuer's SPE provisions to be consistent with our bankruptcy-remoteness criteria outlined in our latest European legal criteria. In rating this transaction, we will review the legal matters that we consider to be relevant to our analysis, as outlined in our criteria. Surveillance S&P Global Ratings will maintain active surveillance on the rated notes until the notes mature or are retired, or until S&P Global Ratings' credit ratings on the transaction have been withdrawn. 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 S&P Global Ratings to maintain continuous surveillance on the rated notes. MARCH 30,

20 Related Criteria And Research Related Criteria Criteria - Structured Finance - CDOs: Global Methodologies And Assumptions For Corporate Cash Flow And Synthetic CDOs, Aug. 8, 2016 Criteria - Structured Finance - General: Ratings Above The Sovereign - Structured Finance: Methodology And Assumptions, Aug. 8, 2016 Criteria - Structured Finance - General: Global Framework For Assessing Operational Risk In Structured Finance Transactions, Oct. 09, 2014 Criteria - Financial Institutions - Banks: Assessing Bank Branch Creditworthiness, Oct. 14, 2013 General Criteria: Methodology Applied To Bank Branch-Supported Transactions, Oct. 14, 2013 Legal Criteria: Europe Asset Isolation And Special-Purpose Entity Criteria--Structured Finance, Sept. 13, 2013 Criteria - Structured Finance - General: Counterparty Risk Framework Methodology And Assumptions, June 25, 2013 General Criteria: Global Investment Criteria For Temporary Investments In Transaction Accounts, May 31, 2012 Criteria - Structured Finance - CDOs: The Use Of Rating-Based Haircuts In Event Of Default Overcollateralization Tests For CDOs, March 19, 2008 Criteria - Structured Finance - CDOs: Qualification And Treatment Of Current-Pay Obligations In Global Cash Flow CLOs, July 11, 2007 Related Research Global Structured Finance Scenario And Sensitivity Analysis 2016: The Effects Of The Top Five Macroeconomic Factors, Dec. 16, 2016 European Structured Finance Scenario And Sensitivity Analysis 2016: The Effects Of The Top Five Macroeconomic Factors, Dec. 16, EMEA Structured Credit Scenario And Sensitivity Analysis, Aug. 6, 2015 Standard & Poor's Introduces Non-Model Version Of CDO Monitor, Dec. 8, 2014 What Are Credit Estimates And How Do They Differ From Ratings?, April 6, 2011 Analytical Team Primary Credit Analyst: Sandeep Chana, London (44) ; sandeep.chana@spglobal.com Secondary Contacts: Yann Marty, London (44) ; yann.marty@spglobal.com Emanuele Tamburrano, London (44) ; emanuele.tamburrano@spglobal.com MARCH 30,

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