Approx. USD 714 million of debt securities affected
London, 29 June 2010 -- Moody's Investors Service stated today that the amendments,
executed on the 18 June 2010, to the transaction documents of the
following notes issued by Amathea Funding Public Limited Company (the
- USD 107,000,000 Amathea Jan 2010 - 1 VFN
- USD 230,000,000 Amathea Apr 2010 -1 VFN
- USD 26,000,000 Amathea Mar 2010 - 1 VFN
- USD 29,500,000 Amathea Jan 2010 - 2 VFN
- USD 38,000,000 Amathea May 2010 - 1 MZ
- USD 5,000,000 Amathea Feb 2010 - 1 SN-1
- USD 79,000,000 Amathea Feb 2010 - 1 VFN
- USD 94,000,000 Amathea Feb 2010 - 2 VFN
- USD 96,500,000 Amathea May 2010 - 1 VFN
will not at this time, in and of themselves, result in a reduction
or withdrawal of the current ratings on the debt. Moody's does
not express an opinion as to whether the amendment could have other non
In addition, Moody's has assigned the following ratings to notes
issued by the Issuer:
EUR 8,200,000 Amathea Jun 2010-1 VFN, Definitive
Rating Assigned Aa1
The ratings address the expected loss posed to investors by the legal
final maturity of the programme in October 2018.
The Issuer Deed of Charge, the Issuer Collateral Administration
and Account Bank Agreement, the Issuer Collateral Management Agreement
and the Issuer Master Definitions and Framework Deed have been amended
and restated on the 18 June 2010.
The executed amendments, can be summarized as follows:
1. Prior to the amendment, the Issuer issued liabilities
in USD and invested the net proceeds in Underlying VFNs also denominated
in USD. The amendment allows the Issuer to invest also in EUR denominated
VFNs as long as the aggregate of the Principal Amount Outstanding and
Undrawn Amount of the Underlying VFNs denominated in EUR is lower than
5% of the aggregate of the Principal Amount Outstanding and Undrawn
Amounts of all Underlying VFNs, when converted at spot rate.
2. The amendment defines a new test (the Capital Model Stress Test),
which assumes that 1) the liabilities are fully drawn, 2) the loans
are breaching their LTV tests from day 1, and 3) no credit is given
to any available cash.
3 Prior to the amendment, monthly tests were run on the 12th of
the month. The test will now be run on the last business day of
At this time, Moody's believes that these amendments do not
have an adverse effect on the rating of the debt. FX evolution
does not adversely affect the ratings given the size of the EUR bucket
(1.). The additional Capital Model Stress Test was added
at the Amathea Funding level as a result of the changes of the Underlying
VFNs from fixed maturity notes to evergreen notes. The ratings
are not affected in Moody's opinion (2.). Finally
the ratings won't experience a negative impact from the change of
the day when the execution of monthly tests will take place (3.).
The rated notes are ultimately backed by low loan-to-value
("LTV") loans granted to 77 funds of hedge funds (each a "Loan").
Each Loan is collateralized by all the assets (that is, hedge fund
shares) of the corresponding fund of hedge funds. However,
only hedge fund shares satisfying certain eligibility criteria are used
to determine the LTV ratios. In particular, only 62%
of the assets are eligible, with the remaining 38% thus not
being considered in the LTV calculation but yet being part of the collateral
securing the Loans. In essence, the Issuer can be viewed
as a CDO of 77 underlying Collateralized Fund of Hedge Funds Obligations
The overall underlying portfolio comprises 528 eligible hedge funds covering
30 strategies among the 33 sectors in Moody's classification. The
strategies currently representing more than 5% are: Opportunistic
(14%), Macro (13%), Long/Short Hedged (10%),
Emerging Markets (11%), CTA (9%), Event Driven
(7%), and Distressed (8%). Out of these 528
hedge funds, only one represents more than 2% of the eligible
The newly issued variable funding note ("VFN") ranks pari passu with the
outstanding senior notes and VFNs, and senior to the mezzanine notes.
Unlike the mezzanine and senior notes, the VFNs have the ability
to capitalize interest, so long as the portfolio performs.
Should the capitalized interest exceed the interest due on the underlying
loans, interest on the VFNs would be paid prior to any payments
to the mezzanine notes. This accrual mechanism has been modeled
and certain interest scenarios tested in Moody's analysis.
The principal methodology used in assigning and monitoring the ratings
of the debt instruments issued by the Issuer is Moody's Approach to Rating
Collateralized Funds of Hedge Fund Obligations, published in July
2003 and available on www.moodys.com in the Rating Methodologies
sub-directory under the Research & Ratings tab. Other
methodologies and factors that may have been considered in the process
of rating the debt instruments issued by the Issuer can also be found
in the Rating Methodologies sub-directory on Moody's website.
In addition, Moody's publishes a weekly summary of structured finance
credit, ratings and methodologies, available to all registered
users of our website, at www.moodys.com/SFQuickCheck.
The main drivers of Moody's analysis for this transaction are as follows:
1. The covenanted maximum LTV for each of the 77 underlying Loans
ranging from 25% to 35%, combined with the additional
protection provided by the subordinated and unrated notes issued by Amathea
Funding. The current LTVs range from 0% to 33%.
2. The assumed volatility of returns of the underlying hedge funds.
For the most important strategies listed above, the volatilities
are: 62% for Emerging Markets, 50% for Opportunistic,
46% for CTA, 39% for Long/Short Hedged, 37%
for Macro, 33% for Event Driven, and 30% for
3. The assumed liquidity profile of the portfolio (i.e.
the time period over which hedge fund investments can be redeemed in cash).
According to the eligibility criteria, a hedge fund cannot be given
credit if its liquidity profile is longer than 15 months. Even
though approximately 70% of the underlying hedge funds have a liquidity
profile shorter than six months, Moody's assumed that all the hedge
funds in the portfolio have a 15 month liquidity profile.
4. The weekly check performed by Demeter (Holdings) Ltd through
a proprietary model developed jointly by Natixis and Demeter that essentially
replicates Moody's quantitative analysis. In addition, the
Loans and their covenants are monitored on a daily basis by Citco Financial
Products (London) Limited. It is noteworthy that given their relatively
subordinated position, the Amathea May 2010 - 1 MZ mezzanine
notes are primarily exposed to the first (few) of the 77 underlying Loans
to incur losses. This makes their rating particularly sensitive
to the portfolio parameters securing the weakest underlying VFNs.
In addition to the scenarios embedded in the published methodology referred
to above, Moody's also considered additional sensitivity tests by
stressing key inputs and using fatter tailed return distributions.
By way of example, assuming a 50% decline in value of the
portfolio as of the 25 June 2010, and assuming both that the Issuer's
liabilities are fully drawn and that the Loans are in default, the
model output for the VFNs remain at a Aaa level.
Moreover, the exposure of the structure to the funds of hedge funds
is fairly limited since the hedge fund shares (as opposed to fund of hedge
funds shares) pledged in favor of the Issuer are held by Citco Global
Custody. Even though it is an unrated entity, it is structured
as a 'special purpose vehicle' whose activities are confined to the safekeeping
of the securities deposited by the clients, and Moody's received
opinions confirming that the securities are segregated from the potential
insolvency of Citco Bank, Citco Global Custody's parent entity.
Moody's will monitor these ratings. Any change in the rating will
be publicly disseminated by Moody's through normal print and electronic
The V Score for this transaction reflects a High uncertainty about critical
assumptions used in the analysis. This is due primarily to the
structural complexity of the transaction and its direct exposure to market
value risk. It is identical to the High V Score assigned to the
Global Hedge Fund Collateralized Fund Obligation sector. It is
however noteworthy that, compared to a typical CFO, the structure
benefits from a particularly better disclosure and quality of data provided
by the Issuer. The special report "V Scores and Parameter Sensitivities
in the Global Hedge Fund CFO Sector" is also available on moodys.com.
Structured Finance Group
Moody's Investors Service Espana, S.A.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Asst Vice President - Analyst
Structured Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's: Amathea Funding CFO - No negative rating impact following various amendments and one definitive rating assigned