On October 6, 2026, Fitch Ratings assigned ratings to Bridge Street CLO VII Ltd., a $400 million arbitrage cash flow collateralized loan obligation managed by Franklin Square Capital Partners Foundation. The transaction relies on a portfolio primarily composed of first-lien senior secured leveraged loans bearing an average credit quality of ‘B’.
Franklin Square Portfolio Metrics and Structural Execution
Here is the math behind the initial portfolio construction. The transaction features a weighted average rating factor (WARF) of 23.27, and will be managed to a WARF covenant from a Fitch test matrix. Meanwhile, the weighted average recovery rate (WARR) sits at 73.25%, with 98% of the underlying assets secured as first-lien senior loans.
The top three industries may comprise up to 39% of the portfolio balance in aggregate. Combined, the top five obligors are permitted to account for as much as 12.5% of the portfolio balance collectively at the starting benchmark matrix point.
| Portfolio Metric | Initial Target / Level |
|---|---|
| Total Portfolio Size | Approximately $400 Million |
| Asset Composition | 98% First-Lien Senior Secured Loans |
| Average Credit Quality | ‘B’ Rating Category |
| Weighted Average Rating Factor (WARF) | 23.27 |
| Weighted Average Recovery Rate (WARR) | 73.25% |
The transaction has a five-year reinvestment period. Fitch derived its evaluation from a simulated stressed portfolio formulated by modifying the baseline portfolio to account for allowable collateral quality test parameters and concentration thresholds.
Sensitivity Analysis and Downside Risk Projections
Variability in key model assumptions creates distinct rating boundaries across the capital stack. For the class A-2 notes, upgrade scenarios are not applicable as these notes are in the highest rating category of ‘AAAsf’.
However, downside risks remain tied directly to recovery and default rate volatility. If defaults rise or recoveries drop, sensitivity scenarios indicate severe rating shifts for junior tranches. Class D-1 notes could face drops to less than ‘B-sf’, while demonstrating a potential rating result of ‘A+sf’ under favorable credit migration.
Class E notes face the widest performance band in the rating matrix. Under negative scenarios, their rating falls below ‘B-sf’, whereas positive performance adjustments result in ‘BBB+sf’.
Disclaimer: The information provided in this article is for educational and informational purposes only and does not constitute financial advice.
