Moody's Downgrades Rating on Octagon 59, Ltd. Notes

Strategic Insights -

Moody's Investors Service has downgraded the rating on the Class E Junior Secured Deferrable Floating Rate Notes due 2035 issued by Octagon 59, Ltd. The downgrade reflects the specific risks to the junior notes posed by par loss observed in the underlying CLO portfolio, which has incurred a par loss of approximately 1.9% or $9.7 million. The downgrade is attributed to the deteriorating weighted average spread (WAS), which has fallen to 3.45% compared to 3.79% in April 2024, failing the trigger of 3.77%. The transaction's reinvestment period will end in May 2027.

Key Takeaways:

  • The Class E Junior Secured Deferrable Floating Rate Notes due 2035 issued by Octagon 59, Ltd. have been downgraded to B1 (sf) from Ba3 (sf).
  • The downgrade reflects the specific risks to the junior notes posed by par loss observed in the underlying CLO portfolio, which has incurred a par loss of approximately 1.9% or $9.7 million.
  • The weighted average spread (WAS) has deteriorated to 3.45% compared to 3.79% in April 2024, failing the trigger of 3.77%.
  • The transaction's reinvestment period will end in May 2027.
  • Moody's model inputs used in the analysis include: performing par and principal proceeds balance: $487,389,225, defaulted par: $4,884,526, diversity score: 87, weighted average rating factor: 2924, weighted average spread: 3.46%, weighted average recovery rate: 45.76%, and weighted average life: 5.5 years.
  • Moody's used the Binomial Expansion Technique in modelling the transaction, and additional scenarios considered factors such as defaults by obligors, deterioration in credit quality, and lower recoveries on defaulted assets.
  • The principal methodology used in this rating was "Moody's Global Approach to Rating Collateralized Loan Obligations" published in May 2024.

Statistics:

  • Par loss incurred by the underlying CLO portfolio: 1.9% or $9.7 million.
  • Weighted average spread (WAS): 3.45% (failed to meet the trigger of 3.77%).
  • Performing par and principal proceeds balance: $487,389,225.
  • Defaulted par: $4,884,526.
  • Diversity score: 87.
  • Weighted average rating factor: 2924.
  • Weighted average spread: 3.46%.
  • Weighted average recovery rate: 45.76%.
  • Weighted average life: 5.5 years.

Sources:

  • Moody's Investors Service, "Moody's Ratings Downgrade Octagon 59, Ltd. Notes", 2024-04-28.