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Rating Action:

Moody's Upgrades its Rating of Corsair (Jersey) No. 4 Limited, a CSO

Global Credit Research - 09 Nov 2010

USD 15 million of debt securities affected

New York, November 09, 2010 -- Moody's Investors Service announced today the following rating action on Corsair (Jersey) No. 4 Limited, a collateralized debt obligation transaction (the Corporate "Collateralized Synthetic Obligation" or "CSO").

The CSO, closed in 2004, referenced a portfolio of synthetic corporate senior unsecured bonds.

Issuer: Corsair (Jersey) No. 4 Limited

....US$15M USD $15,000,000 Deferrable Fixed Rate Secured Portfolio Credit-Linked Notes due 2014 Notes, Upgraded to Ba3 (sf); previously on Oct 16, 2009 Downgraded to B1 (sf)

RATINGS RATIONALE

Moody's explained that the rating action taken today is the result of the relative stability of the credit quality of the reference portfolio, the shortened time to maturity of the CSO and a substantial level of credit enhancement remaining.

The 10-year weighted average rating factor (WARF) of the portfolio is 1099, equivalent to Ba2 (excluding settled credit events) compared to a 1177 WARF, equivalent to a Ba2 rating, as of the last rating action. The remaining subordination protecting the rated tranche from portfolio losses amounts to 7.5% of the portfolio notional. The portfolio concentration in referenced entities rated Caa1 and below has slightly improved from 8.3% to 7.5%, and the concentration in B rated entities has deteriorated from 4.1% to 7.5%. There are 21 entities with a negative outlook compared to six with positive outlook, and four entities on watch for downgrade compared to one on watch for upgrade.

The portfolio has experienced 5 credit events, equivalent to 1.0% loss of the initial subordination. Since the last rating action, CIT Group Inc. has been subject to a credit event. In addition, the portfolio is exposed to Clear Channel Communication and Harrah's Operating Company, which are not credit events, but are modelled at Ca. The maturity of the note is 3.9 years.

Moody's rating action factors in the modeling result of a number of sensitivity analyses and stress scenarios:

• Time to maturity - The committee has reviewed the impact of a scenario consisting of reducing the maturity by one year, keeping all other things equal. Reducing the maturity of the transaction generated a result that is one notch worse than the model's result generated under the base case.

• MIRs - Moody's rating action first took into account the result of a sensitivity analysis consisting of modeling MIRs in place of the corporate fundamental rating to derive the default probability of each corporate name in the reference portfolio. The gap between an MIR and a Moody's corporate fundamental rating is an indicator of the extent of the divergence of credit view between Moody's and the market on each referenced name in the CSO portfolio. The result of this run was one notch better than under the base case.

• Potential defaults - A sensitivity analysis consisting of defaulting all entities rated Caa1 and below was done. This run generated an expected loss that is three notches below the one modeled under the base case.

• Removing the notch down on all reference entities on negative outlook - This run generated an expected loss that is one notch above the one modeled under the base case.

In addition to the quantitative factors that are explicitly modeled, qualitative factors are part of 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, and specific documentation features. 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.

The principal methodology used in this rating was "Moody's Approach to Corporate Collateralized Synthetic Obligations" rating methodology published in September 2009. Moody's analysis for this transaction is based on the CDOROM v2.6. This model is available on moodys.com under Products and Solutions -- Analytical models, upon return of a signed free license agreement.

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 6 months.

Due to the impact of revised and updated key assumptions referenced in "Moody's Approach to Rating Corporate Synthetic Obligations", key model inputs used by Moody's in its analysis may be different from the manager/arranger's reported numbers. In particular, rating assumptions for all publicly rated corporate credits in the underlying portfolio have been adjusted for "Review for Possible Downgrade", "Review for Possible Upgrade", or "Negative Outlook".

Moody's did not run a separate loss and cash flow analysis other than the one already done using the CDOROM model. For a description of the analysis, refer to the methodology and the CDOROM user guide on Moody's website.

Moody's analysis of CSOs is subject to uncertainties, the primary sources of which includes complexity, governance and leverage. Although the CDOROM model captures many of the dynamics of the Corporate CSO structure, it remains a simplification of the complex reality. Of greatest concern are (a) variations over time in default rates for instruments with a given rating, (b) variations in recovery rates for instruments with particular seniority/security characteristics and (c) uncertainty about the default and recovery correlations characteristics of the reference pool. Similarly on the legal/structural side, the legal analysis although typically based in part on opinions (and sometimes interpretations) of legal experts at the time of issuance, is still subject to potential changes in law, case law and the interpretations of courts and (in some cases) regulatory authorities. The performance of this CSO is also dependent on on-going decisions made by one or several parties, including the Manager and the Trustee. Although the impact of these decisions is mitigated by structural constraints, anticipating the quality of these decisions necessarily introduces some level of uncertainty in our assumptions. Given the tranched nature of Corporate CSO liabilities, rating transitions in the reference pool may have leveraged rating implications for the ratings of the Corporate CSO liabilities, thus leading to a high degree of volatility.

All else being equal, the volatility is likely to be higher for more junior or thinner liabilities.

The base case scenario modeled fits into the central macroeconomic scenario predicted by Moody's of a sluggish recovery scenario of the corporate universe. Should macroeconomics conditions evolves towards a more severe scenario such as a double dip recession, the CSO rating will likely be downgraded to an extent depending on the expected severity of the worsening conditions.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the rating and parties not involved in the rating.

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of maintaining a credit rating.

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.

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
Dimitri Kaltsas
Associate 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.

Moody's Upgrades its Rating of Corsair (Jersey) No. 4 Limited, a CSO
No Related Data.
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