Moody's Assigns Provisional Ratings to Palmer Square European Loan Funding 2025-2 CLO

Strategic Insights -

Moody's Investors Service has assigned provisional ratings to notes issued by Palmer Square European Loan Funding 2025-2 Designated Activity Company, a static cash flow Collateralized Loan Obligation (CLO) vehicle. The ratings reflect the risks associated with the CLO's portfolio and structure, which will be collateralized by broadly syndicated senior secured corporate loans. The Issuer plans to sell assets on behalf of the CLO, with no reinvestment allowed, and all sales and principal proceeds will be used to amortize the notes in sequential order.

Key Takeaways:

  • The Issuer, Palmer Square European Loan Funding 2025-2 Designated Activity Company, is a static cash flow CLO that will be collateralized by broadly syndicated senior secured corporate loans.
  • The CLO's portfolio is expected to comprise predominantly corporate loans to obligors domiciled in Western Europe, with a ramp-up of 100% expected at the closing date.
  • Palmer Square Europe Capital Management LLC, the collateral manager, may sell assets on behalf of the Issuer during the life of the transaction, with no reinvestment allowed.
  • The transaction incorporates interest and par coverage tests that divert interest and principal proceeds to pay down the notes in order of seniority.
  • Moody's used the "Moody's Global Approach to Rating Collateralized Loan Obligations" methodology, published in May 2024, to model the transaction and determine the provisional ratings.
  • The rated notes' performance is sensitive to the performance of the underlying portfolio, which depends on economic and credit conditions that may change, and the collateral manager's investment decisions and management of the transaction.

Statistics:

  • The CLO will issue EUR 272,000,000 in Class A Senior Secured Floating Rate Notes, EUR 38,000,000 in Class B Senior Secured Floating Rate Notes, and EUR 20,800,000 in Class C Senior Secured Deferrable Floating Rate Notes, among others.
  • The portfolio is expected to comprise predominantly corporate loans to obligors domiciled in Western Europe, with a diversity score of 63 and a weighted average rating factor (WARF) of 2714.
  • The weighted average spread (WAS) is 3.62%, the weighted average coupon (WAC) is 2.67%, and the weighted average recovery rate (WARR) is 43.87%.

Sources:

  • Moody's Global Approach to Rating Collateralized Loan Obligations, published in May 2024, available at https://ratings.moodys.com/rmc-documents/420962
  • Moody's Ratings, Palmer Square European Loan Funding 2025-2 Designated Activity Company news release