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Related Issuers
Rating Action:

Moody's Upgrades CLO Notes Issued by Atrium IV

10 Mar 2011

$588.7M Total Debt Affected

New York, March 10, 2011 -- Moody's Investors Service announced today that it has upgraded the ratings of the following notes issued by Atrium IV:

U.S. $387,000,000 Class A1-a Floating Rate Notes Due 2019 (current balance: $381,251,692.88), Upgraded to Aa3(sf); previously on August 5, 2009 Downgraded to A1(sf);

U.S. $7,000,000 Class A1-b Fixed Rate Notes Due 2019 (current balance: $6,896,025.45), Upgraded to Aa3(sf); previously on August 5, 2009 Downgraded to A1(sf);

U.S. $100,000,000 Class A2 Delayed Draw Floating Rate Notes Due 2019 (current balance: $98,514,649.32), Upgraded to Aa3(sf); previously on August 5, 2009 Downgraded to A1(sf);

U.S. $28,000,000 Class A3 Deferrable Floating Rate Notes Due 2019, Upgraded to A3(sf); previously on August 5, 2009 Downgraded to Baa2(sf);

U.S. $35,000,000 Class B Deferrable Floating Rate Notes Due 2019, Upgraded to Ba1(sf); previously on August 5, 2009 Downgraded to Ba2(sf);

U.S. $27,500,000 Class C Floating Rate Notes Due 2019, Upgraded to B3(sf); previously on August 5, 2009 Downgraded to Caa2(sf);

U.S. $8,000,000 Class D-1 Floating Rate Notes Due 2019, Upgraded to Caa3(sf); previously on November 23, 2010 Ca(sf) Placed Under Review for Possible Upgrade;

U.S. $3,500,000 Class D-2 Fixed Rate Notes Due 2019, Upgraded to Caa3(sf); previously on November 23, 2010 Ca(sf) Placed Under Review for Possible Upgrade.

RATINGS RATIONALE

According to Moody's, the rating actions taken on the notes result primarily from improvement in the credit quality of the underlying portfolio and an increase in the overcollateralization ratios of the notes since the August 2009 rating action.

Improvement in the credit quality is observed through an improvement in the average credit rating (as measured by the weighted average rating factor). As of the trustee report dated January 25, 2011, the weighted average rating factor is currently 2766 compared to 2889 in the June 1, 2009 report. Additionally, defaulted securities total about $17.8million of the underlying portfolio compared to $68.7million in June 2009. The percentage of securities rated Caa and below also declined to 5.37 from 9.57.

The overcollateralization ratios of the rated notes have also improved since the rating action. The Class A, B, C and D Par Value Tests are reported at 121.78%, 114.02%, 108.59% and 106.47%respectively, versus June 2009 levels of 115.06%, 107.78%, 102.68% and 100.69% respectively. All overcollateralization tests are currently in compliance.

Due to the impact of revised and updated key assumptions referenced in "Moody's Approach to Rating Collateralized Loan Obligations" and "Annual Sector Review (2009): Global CLOs," key model inputs used by Moody's in its analysis, such as par, weighted average rating factor, diversity score, and weighted average recovery rate, may be different from the trustee's reported numbers. In its base case, Moody's analyzed the underlying collateral pool to have a performing par balance of $622.6million, defaulted par of $18.3 million, a weighted average default probability of 28% (implying a WARF of 3900), a weighted average recovery rate upon default of 41.83% and a diversity score of 75. 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. 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. In each case, historical and market performance trends, and collateral manager latitude for trading the collateral are also factors.

Atrium IV, issued in June 2005, is a collateralized loan obligation backed primarily by a portfolio of senior secured loans.

The principal methodology used in these ratings was "Moody's Approach to Rating Collateralized Loan Obligations" published in August 2009.

Moody's Investors Service did not receive or take into account a third-party due diligence report on the underlying assets or financial instruments related to the monitoring of this transaction in the past six months.

Moody's modeled 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 August 2009.

In addition to the base case analysis described above, Moody's also performed sensitivity analyses to test the impact on all rated notes of various default probabilities. Below is a summary of the impact of different default probabilities (expressed in terms of WARF levels) on all rated notes (shown in terms of the number of notches' difference versus the current model output, where a positive difference corresponds to lower expected loss), assuming that all other factors are held equal:

Moody's Adjusted WARF - 20% (3120)

Class A1-a: +2

Class A1-b: +2

Class A3: +2

Class B: +2

Class C: +3

Class D-1: +3

Class D-2: +3

Moody's Adjusted WARF +20% (4680)

Class A1-a: -2

Class A1-b: -2

Class A3: -2

Class B: -2

Class C: -3

Class D-1: 0

Class D-2: 0

Moody's notes that this transaction is subject to a high level of macroeconomic uncertainty, as evidenced by 1) uncertainties of credit conditions in the general economy and 2) the large concentration of speculative-grade debt maturing between 2012 and 2014 which may create challenges for issuers to refinance. CDO notes' performance may also be impacted by 1) the manager's investment strategy and behavior 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) 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.

2) Weighted average life: The notes' ratings are sensitive to the weighted average life assumption of the portfolio, which may be extended due to the manager's decision to reinvest into new issue loans or other loans with longer maturities and/or participate in amend-to-extend offerings.

3) Other collateral quality metrics: The deal is allowed to reinvest until June 2011 and the manager has the ability to deteriorate the collateral quality metrics' existing cushions against the covenant levels. Moody's analyzed the impact of assuming lower of reported and covenanted values for weighted average spread, weighted average coupon and diversity score.

Further information on Moody's analysis of this transaction is available on www.moodys.com. In addition, Moody's publishes a weekly summary of structured finance credit, ratings and methodologies, available to all registered users of our web site, at www.moodys.com/SFQuickCheck

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, public information, and confidential and proprietary Moody's Investors Service 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.

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.

New York
Yasmine Mahdavi
Asst Vice President - Analyst
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Rodrigo Araya
Senior Vice President
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Upgrades CLO Notes Issued by Atrium IV
No Related Data.
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