Moody's also affirms approx. EUR 46M CLO notes
London, 08 May 2013 -- Moody's Investors Service announced today that it has taken the following
rating actions on the notes issued by Strawinsky I P.L.C.:
....EUR43M Class A2 Senior Secured Floating
Rate Notes due 2024, Upgraded to Aa2 (sf); previously on Nov
7, 2011 Upgraded to Baa3 (sf)
....EUR23M Class B Senior Secured Floating
Rate Notes due 2024, Upgraded to Baa2 (sf); previously on Nov
7, 2011 Upgraded to B3 (sf)
....EUR19M Class C Senior Secured Deferrable
Floating Rate Notes due 2024, Upgraded to Caa2 (sf); previously
on Nov 7, 2011 Confirmed at Ca (sf)
Moody's also affirmed the ratings of the Class A1, Class D
and Class E notes issued by Strawinsky I P.L.C.:
....EUR105.5M (with current outstanding
balance of EUR 12.75M) Class A1-T Senior Secured Floating
Rate Notes due 2024, Affirmed Aaa (sf); previously on Nov 7,
2011 Upgraded to Aaa (sf)
....EUR58.63M (with current outstanding
balance of EUR 0.8M, GBP 3M, USD 2.3M ) Class
A1-R Senior Secured Floating Rate Notes due 2024, Affirmed
Aaa (sf); previously on Nov 7, 2011 Upgraded to Aaa (sf)
....EUR12M Class D Senior Secured Deferrable
Floating Rate Notes due 2024, Affirmed Ca (sf); previously
on Jun 25, 2009 Downgraded to Ca (sf)
....EUR10.27M Class E Senior Secured
Deferrable Floating Rate Notes due 2024, Affirmed C (sf); previously
on Jun 25, 2009 Downgraded to C (sf)
RATINGS RATIONALE
According to Moody's, the rating actions taken on the notes results
primarily from the significant amortisation of the Class A-1 Notes,
which have been paid down by approximately 88% of their original
balance, or approximately EUR 47 million since the last rating action
in November 2011.
As a result of this deleveraging, the overcollateralization ratios
(or "OC ratios") for the senior and mezzanine notes,
namely, Class A, Class B and Class C Notes, have improved
since the rating action in November 2011. As of the latest trustee
report dated April 2013, the Class A/B, Class C, Class
D and Class E OC ratios are reported at 130.7%, 105.9%,
93.6% and 84.6%, respectively,
versus October 2011 levels of 117.57%, 102.15%,
94.04% and 87.71%, respectively.
Moody's also notes that the documentation of Strawinsky I P.L.C.
CLO allows for an event of default ("EoD") to be triggered
by the Class A1 note holders, should the Class A/B OC test fall
below 100%. Such EoD risk is now considered as a remote
likelihood, with the current class A/B OC ratio of 130.7%,
up from 117.57% compared to the last rating action in November
2011.
Moody's notes that OC tests for Class C, Class D and Class
E notes continue to fail and there still remain deferred interest payments
in respective classes of notes.
In its base case, Moody's analyzed the underlying collateral
pool to have a performing par and principal proceeds balance of EUR 130.5
million, defaulted par of EUR 12.9 million, a weighted
average rating factor ("WARF") of 4847, a weighted average
recovery rate upon default of 45.62% for a Aaa liability
target rating, a diversity score of 19 and a weighted average spread
of 3.05%. The default probability is derived from
the credit quality of the collateral pool and Moody's expectation
of the remaining life of the collateral pool. The average recovery
rate to be realized on future defaults is based primarily on the seniority
of the assets in the collateral pool. For a Aaa liability target
rating, Moody's assumed that 89.05% of the portfolio
exposed to senior secured corporate assets would recover 50% upon
default, while the remainder non first-lien loan corporate
assets would recover 10%. In each case, historical
and market performance trends and collateral manager latitude for trading
the collateral are also relevant factors. These default and recovery
properties of the collateral pool are incorporated in cash flow model
analysis where they are subject to stresses as a function of the target
rating of each CLO liability being reviewed.
In addition to the base case analysis described above, Moody's also
performed sensitivity analyses on key parameters for the rated notes:
1) Deterioration of credit quality to address the refinancing and sovereign
risks -- Approximately 46.7% of the portfolio
is rated B3 and below with maturities between 2014 and 2016, which
may create challenges for issuers to refinance. The portfolio is
also exposed to 17% of obligors located in Greece andSpain.
Moody's considered the scenario where the WARF of the portfolio was increased
to 5,896 by forcing to Ca the credit quality of 50% of such
exposures subject to refinancing or sovereign risks. This scenario
generated model outputs that were approximately one to two notches from
today's rating actions.
2) High concentration to securities rated Caa1 or below -- Approximately
31% of the portfolio is rated Caa1 or below. Moody's
considered the scenario where all Caa1 and below rated assets are forced
to Ca with no recovery, by increasing WARF of the portfolio to 5619/
This scenario generated model outputs that were approximately two notches
from today's rating actions.
Moody's notes that this transaction is subject to a high level of
macroeconomic uncertainty, which could negatively impact the ratings
of the notes, as evidenced by 1) uncertainties of credit conditions
in the general economy and 2) the large concentration of speculative-grade
debt maturing between 2014 and 2016 which may create challenges for issuers
to refinance. CLO notes' performance may also be impacted
either positively or negatively by 1) the liquidation agents behaviour
and 2) divergence in legal interpretation of CDO documentation by different
transactional parties due to embedded ambiguities.
Sources of additional performance uncertainties are described below:
1) Portfolio Amortisation: The main source of uncertainty in this
transaction is whether delevering from unscheduled principal proceeds
will continue and at what pace. Delevering may accelerate due to
high prepayment levels in the loan market and/or collateral sales by the
liquidation agent, which may have significant impact on the notes'
ratings.
2) Moody's also notes that around 63% of the collateral pool consists
of debt obligations whose credit quality has been assessed through Moody's
credit estimates. Large single exposures to obligors bearing a
credit estimate have been subject to a stress applicable to concentrated
pools as per the report titled "Updated Approach to the Usage of Credit
Estimates in Rated Transactions" published in October 2009.
3) The deal has exposure to non-EUR denominated assets.
Volatilities in foreign exchange rate will have a direct impact on interest
and principal proceeds available to the transaction, which may affect
the expected loss of rated tranches.
4) Recovery of defaulted assets: Market value fluctuations in defaulted
assets reported by the trustee and those assumed to be defaulted by Moody's
may create volatility in the deal's overcollateralization levels.
Further, the timing of recoveries and the manager's decision
to work out versus sell defaulted assets create additional uncertainties.
Moody's analyzed defaulted recoveries assuming the lower of the
market price and the recovery rate in order to account for potential volatility
in market prices.
The principal methodology used in this rating was "Moody's Approach to
Rating Collateralized Loan Obligations" published in June 2011.
Please see the Credit Policy page on www.moodys.com for
a copy of this methodology.
Moody's modelled the transaction using the Binomial Expansion Technique,
as described in Section 2.3.2.1 of the "Moody's Approach
to Rating Collateralized Loan Obligations" rating methodology published
in June 2011.
Under this methodology, Moody's used its Binomial Expansion Technique,
whereby the pool is represented by independent identical assets,
the number of which is being determined by the diversity score of the
portfolio. The default and recovery properties of the collateral
pool are incorporated in a cash flow model where the default probabilities
are subject to stresses as a function of the target rating of each CLO
liability being reviewed. The default probability range is derived
from the credit quality of the collateral pool, and Moody's expectation
of the remaining life of the collateral pool. The average recovery
rate to be realized on future defaults is based primarily on the seniority
and jurisdiction of the assets in the collateral pool.
The cash flow model used for this transaction, whose description
can be found in the methodology listed above, is Moody's EMEA Cash-Flow
model.
This model was used to represent the cash flows and determine the loss
for each tranche. The cash flow model evaluates all default scenarios
that are then weighted considering the probabilities of the binomial distribution
assumed for the portfolio default rate. In each default scenario,
the corresponding loss for each class of notes is calculated given the
incoming cash flows from the assets and the outgoing payments to third
parties and noteholders. Therefore, the expected loss or
EL for each tranche is the sum product of (i) the probability of occurrence
of each default scenario; and (ii) the loss derived from the cash
flow model in each default scenario for each tranche. Therefore,
Moody's analysis encompasses the assessment of stressed scenarios.
In addition to the quantitative factors that are explicitly modelled,
qualitative factors are part of the rating committee considerations.
These qualitative factors include the structural protections in each transaction,
the recent deal performance in the current market environment, the
legal environment, specific documentation features, the collateral
manager's track record, and the potential for selection bias in
the portfolio. All information available to rating committees,
including macroeconomic forecasts, input from other Moody's analytical
groups, market factors, and judgments regarding the nature
and severity of credit stress on the transactions, may influence
the final rating decision.
On 12 March 2013, Moody's released a report, which describes
how sovereign credit deterioration impacts structured finance transactions
and the rationale for introducing two new parameters into its general
analysis of such transactions. In the coming months, Moody's
will update its methodologies relating to multi-country portfolios
including that of collateralised Loan obligations (CLOs) as well as that
of other types of collateralised debt obligations (CDO), asset-backed
commercial paper (ABCP) and commercial mortgage-backed securities
(CMBS). Once those methodologies are updated and implemented,
the rating of the notes affected by today rating action may be negatively
affected. See "Structured Finance Transactions: Assessing
the Impact of Sovereign Risk" for further details.
REGULATORY DISCLOSURES
Moody's did not receive or take into account a third-party
assessment on the due diligence performed regarding the underlying assets
or financial instruments related to the monitoring of this transaction
in the past six months.
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides certain regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this rating action, and
whose ratings may change as a result of this rating action, the
associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Angela Jung
Analyst
Structured Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Neelam S Desai
Senior Vice President/Manager
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's upgrades EUR 85M CLO notes of Strawinsky I P.L.C.
