The A+ credit rating accorded to the Global Notes (the ‘Notes’) relates to the timely payment of interest and the ultimate repayment of principal.
TRANSACTION OVERVIEW:
The transaction, which is set up as a dual-SPV structure, with an insured downstream facility between a downstream SPV (‘Western Elm Company’) and an upstream SPV (‘Eastern Elm Company’), and upstream financing, in the form of Notes issued by the upstream SPV, provides funding for the downstream SPV’s limited partnership (‘LP’) investments in a basket of Private Equity Funds. The repayment of the insured downstream facility is primarily driven by the distributions from the Funds. Repayment of the Notes is therefore primarily driven by the distributions from the Funds but is not
dependent thereon. Rather should there be insufficient distributions from the Funds, an insurance policy ensures full repayment by the downstream SPV to the upstream SPV, thereby ensuring full repayment of the Notes by the upstream SPV. A highly rated re-insurer assumes 100% of the insured risk.
The insured downstream facility has a maturity date of 5 February 2029, which coincides with the end of the policy period (also 5 February 2029). The insurance policy includes a 30-day waiting period following the provision of a Proof of Loss in connection with non-payment under the insured downstream facility. As such the maturity on the Notes issued by Eastern Elm Company have a maturity of 15 March 2029 thus allowing for sufficient time for the insurance policies to pay out in the event of a claim in connection with the insured downstream facility. The transaction is structured to ensure that if an
Event of Default occurs under the insured downstream facility, and is uncured, the insurance will pay out, thereby allowing for full repayment repay of the Notes. The insurance and reinsurance policy have limited conditionality (e.g. payment of initial premium which has already been satisfied), and limited exclusions (e.g. a fraudulent act or fraudulent omission) to which ARC’s rating would not apply. The transaction is structured to ensure that should the Insurance company become insolvent the transaction will continue with their rights and responsibilities assigned to other transaction parties (primarily the insured and the re-insurer). Therefore, there is no ongoing dependency or credit risk on the insurer.
COUNTERPARTIES
Eastern Elm Company (‘Issuer’, ‘Upstream SPV’) – validly incorporated under the laws of the Cayman Islands with a registered address at c/o Estera Trust (Cayman) Limited, Clifton House, 75 Fort Street, PO Box 1350, George Town, Grand Cayman KY1-1108, Cayman Islands.
Western Elm Company (‘Downstream SPV’) – validly incorporated under the laws of the Cayman Islands with a registered address at Estera Trust (Cayman) Limited, Clifton House 75 Fort Street, PO Box 1350, George Town, Grand Cayman KY1-1108, Cayman Islands.
Insurer – a company validly incorporated under the laws of Bermuda.
Reinsurer – a company validly incorporated under the laws of Bermuda, rated A+/A1 by S&P and Moody’s. NatWest Markets PLC (‘Administrative Agent’) – a public limited company incorporated under the laws of Scotland with company number SC090312, with a registered address at 36 St Andrew Square, Edinburgh, EH2 2YB. Deutsche Bank Trust Company Americas (‘Note Agent’, ‘Note Registrar’, ‘Paying Agent’, ‘Transfer Agent’, ‘Account Bank/Claim Paid Account’) – a private limited company validly incorporated under the laws of the United States with company number 187205, with a registered address at 1 Columbus Circle, 17th floor, New York, NY 10019.
Reinsurer: The reinsurer has an Insurer Financial Strength rating of A+/A1 from S&P and Moody’s. ARC has public access to these ratings and will monitor them on an ongoing basis.
Should there be any rating action on the re-insurer, ARC will review this rating. In addition, the linkage to the re-insurer is limited due to the existence of downgrade triggers, which include an Event of Default trigger if the reinsurer’s rating degrades.
Legal Structure: The structure of this transaction is such that ARC is able to ‘look-through’ to the rating of the re-insurer given the limited conditionality and exclusions.
Account Bank Rating: ARC has not applied a rating cap as a result of the counterparty risk presented by Deutsche Bank Trust Company Americas (DBTCA). DBTCA has Short Term ratings of P-1 from Moody’s and F2 from Fitch, both with Positive Outlook. Given the positive outlook on the F2 rating, ARC has determined on this occasion to not apply a rating cap to this rating.
SENSITIVITY ANALYSIS AND TURNING POINTS.
Given the linkage to the re-insurers rating, any change (positive or negative) will result in a review of this rating.
RELATED CRITERIA.
ARC Ratings’ Global Structured Finance Rating Criteria (Sep 2021).
ARC Ratings’ Global Credit Linked Note and Repackaging Vehicle Rating Criteria (Feb 2021).
The rating(s) were assigned by ARC Ratings (UK) Limited and endorsed by
ARC Ratings, S.A. in accordance with Regulation (EC) Nº 1060/2009 of the European Parliament and of the Council.
