$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
