London, 16 December 2010 -- Substitute fourteenth paragraph, preceding REGULATORY DISCLOSURES,
with the following: "Moody's Investors Service did not
receive or take into account a third party due diligence report on the
underlying assets or financial instruments in this transaction in the
past six months. Moody's Investors Service did receive a
financial statement and the receipt of the statement itself had a neutral
impact on the ratings".
Revised release follows.
Moody's Investors Service announced today it has upgraded its ratings
of three classes of notes and confirmed the ratings of three classes of
notes issued by Tenzing CFO, S.A (Tenzing.) The transaction
is a CDO referencing a portfolio of private equity investments essentially
constituted of venture capital funds (VC) and buyout funds.
Today's rating actions are as follows:
US$55M A Notes, Upgraded to A2 (sf); previously on Mar
26, 2009 Downgraded to Baa2 (sf) and Remained On Review for Possible
Downgrade
US$16M B1 Notes, Upgraded to Baa3 (sf); previously on
Mar 26, 2009 Downgraded to Ba2 (sf) and Remained On Review for Possible
Downgrade
EUR21M B2 Notes, Upgraded to Baa3 (sf); previously on Mar 26,
2009 Downgraded to Ba2 (sf) and Remained On Review for Possible Downgrade
US$33M C Notes, Confirmed at Ba3 (sf); previously on
Mar 26, 2009 Downgraded to Ba3 (sf) and Remained On Review for Possible
Downgrade
US$8.5M D1 Notes, Confirmed at B2 (sf); previously
on Mar 26, 2009 Downgraded to B2 (sf) and Remained On Review for
Possible Downgrade
EUR10M D2 Notes, Confirmed at B2 (sf); previously on Mar 26,
2009 Downgraded to B2 (sf) and Remained On Review for Possible Downgrade
RATINGS RATIONALE
Tenzing is a bankruptcy remote special purpose company incorporated with
limited liability in Luxembourg for the sole purpose of acquiring its
interest in the portfolio and certain other assets securing the notes,
and issuing the notes. (More information on the structure can be
found on www.moody's.com in the pre-sale report posted
on the 17 December 2004: "TENZING CFO S.A.").
Today's rating actions are primarily a result of Moody's updated surveillance
approach assumptions pertaining to CFO referencing private equity interest
and the evolution of the performance of the private equity transaction
since the closing of the transaction as well as the improvement in timely
information provided for the transaction. The ratings were kept
on watch for downgrade on the 26 of March, 2009 as the approach
was being reviewed.
Moody's updated surveillance approach:
In its updated surveillance approach, Moody's relies on the Internal
Rate of Return (IRR) of each underlying fund as a primary performance
indicator. Moody's believes that the shape of the distribution
that best fits the historical data is a student-t distribution
with three degrees of freedom. The base case assumes the equivalent
volatility for primary funds to be 52% for VC funds and 26%
for buyout funds. The mean is assumed at 10% for both types
of funds.
The timing of the cash-flows is an additional required input in
Moody's surveillance approach. Based on historical analysis,
Moody's chose a set of deterministic cash-flows shapes for distributions
and drawn-downs, which represent Moody's "J-curve
assumptions". Under these assumptions, draw-downs
are expected to be mostly concentrated in the first three to four years
following the initial commitment while the cash-flow distributions
are spread over a ten-year period and mostly concentrated between
year six and ten.
Moody's obtained historical performance data and further adjusted the
data using public equity equivalent analysis as well as equivalent research
pursued by scholars and researchers.
In its approach, Moody's used a Gaussian copula model for the dependency
structure of the final IRRs of the funds. The correlation between
VC funds and buyout funds is assumed at 40% in the base case.
The intra-correlation is assumed at 50%.
In addition, Moody's assumptions of the final returns of primary
funds were adjusted given the seasoning of the underlying funds already
invested in this transaction. The standard deviation of the IRR
related to the funded portion of the underlying funds was reduced by a
factor of three and the correlation between the funded portion and the
unfunded portion was reduced to 20%.
A model derives the aggregated cash flow projection at the CFO level based
on Moody's dependence and J-curve assumptions for each random IRR
drawn from the student-t distribution. For each simulation,
the aggregated cash-flows resulting from the asset modeling is
flushed into a simplified waterfall based on the transaction's documentation.
The model then derives an expected loss for each rated tranche.
The modeling on the liability side is handled by the standard EMEA cash
flow model, whose description can be found in "Moody's Approach
to Rating Collateralized Loan Obligations" rating methodology published
in August 2009.
In reaching its rating decisions, Moody's also considered the following
important factors:
(1) Cash flow sensitivity analysis
Moody's assessed expected cash flows on the rated tranches based on the
updated surveillance approach. In addition to the base case described
above, the agency considered various scenarios related to the IRR
distribution, the dependency structure and the timing of distributions
and drawdowns via the J-curve. Sensitivity to interest rate
and foreign exchange fluctuations was also analyzed. The observed
model outputs volatility in these sensitivity runs was deemed consistent
with the current rating levels and available notes coverage.
(2) Coverage Position
The coverage position is a balance sheet indicator assessing how the current
fair-value of the assets compare to the liabilities. The
Asset Coverage Test was 425% for the Class A notes and 153%
for the Class D notes in September 2010.
(3) NAV
The NAV per share improved from 736 USD in March 2009 to 792 USD as of
June 2010, as compared to 1,000 USD at closing.
(4) Liquidity Position
By nature, private-equity investors commit capital that will
be drawn in the future. The liquidity available is constituted
of the cash outstanding, the future distributions and the additional
protection provided by the liquidity facility. This funds expense
payments and draw-downs to private-equity investors.
The current modeling assumes that undrawn commitments will be fully drawn.
The presence of a liquidity facility renders the risk of a default on
an interest payment remote.
Moody's Investors Service did not receive or take into account a
third party due diligence report on the underlying assets or financial
instruments in this transaction in the past six months. Moody's
Investors Service did receive a financial statement and the receipt of
the statement itself had a neutral impact on the ratings.
REGULATORY DISCLOSURES
The rating has been disclosed to the rated entity or its designated agents
and issued with no amendment resulting from that disclosure.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings
and public information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
However, the credit rating action was based on limited historical
data. Private Equity is private by nature and the length of the
related available performance indicators is shorter than the standard
equity or credit history.
Moody's Investors Service may have provided Ancillary or Other Permissible
Service(s) to the rated entity or its related third parties within the
three years preceding the Credit Rating Action. Please see the
ratings disclosure page www.moodys.com/disclosures on our
website for further information.
Moody's Investors Service may have provided Ancillary or Other Permissible
Service(s) to the rated entity or its related third parties within the
three years preceding the Credit Rating Action. Please see the
ratings disclosure page www.moodys.com/disclosures on our
website for further information.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
London
Christophe Larpin
Asst Vice President - Analyst
Structured Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Paris
Florence Tadjeddine
VP - Senior Credit Officer
Structured Finance Group
Moody's France SAS
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
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
Correction to Text, December 3, 2010 Release: Moody's upgrades the ratings of Tenzing a private-equity CFO.
