New York, February 23, 2012 -- Moody's Investors Service announced today that it has assigned the following
rating to notes issued by Valhalla CLO, Ltd.:
U.S. $10,000,000 Class Q-1 Extendable
Securities (current rated balance of $1,968,160),
Assigned B1 (sf).
RATINGS RATIONALE
The Class Q-1 combination securities are comprised of $5
million of Class C-2 Notes and $5 million of Income Notes
of Valhalla CLO , Ltd. The rating on the Class Q-1
combination securities addresses the ultimate receipt of the Class Q-1
Rated Principal plus a coupon of 2%. The rating is also
based upon the transaction's legal structure and characteristics
of the collateral pool.
Due to the impact of revised and updated key assumptions referenced in
"Moody's Approach to Rating Collateralized Loan Obligations" published
in June 2011, 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
reference pool to have a swap notional balance of $787 million,
an eligible investments balance of $139.5 million,
defaulted par balance of $47 million, a weighted average
default probability of 17.7% (implying a WARF of 2959),
a weighted average recovery rate upon default of 48.3%,
and a diversity score of 51. The default and recovery properties
of the reference 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 reference pool. The average recovery
rate to be realized on future defaults is based primarily on the seniority
of the assets in the reference pool. In each case, historical
and market performance trends and collateral manager latitude for trading
the collateral are also factors.
Moody's noted that the underlying portfolio includes a number of investments
in securities that mature after the maturity date of the notes,
and that such exposure has grown as a result of the deal's decision to
participate in amend-and-extend activities. Based
on Moody's calculations, as of the October 2011 trustee report,
securities that mature after the maturity date of the notes make up approximately
11.2% of the underlying portfolio. The high percentage
of these securities potentially exposes the notes to market risk in the
event of liquidation at the time of the notes' maturity.
Valhalla CLO, Ltd., issued in August of 2004,
is a synthetic collateralized loan obligation referencing a portfolio
of primarily senior secured loans.
The methodologies used in this rating were "Moody's Approach to Rating
Collateralized Loan Obligations" published in June 2011 and "Using the
Structured Note Methodology to Rate CDO Combo-Notes" published
in February 2004. Please see the Credit Policy page on www.moodys.com
for a copy of these methodologies.
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 June 2011.
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 2014 and 2016 which may create challenges for issuers
to refinance. CLO notes' performance may also be impacted by 1)
the manager's investment strategy and behavior and 2) divergence in legal
interpretation of CLO documentation by different transactional parties
due to embedded ambiguities.
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% (2367)
Class Q-1: +2
Moody's Adjusted WARF + 20% (3550)
Class Q-1: -1
Sources of additional performance uncertainties are described below:
1) Amortization of the reference pool: The main source of uncertainty
in this transaction is the pace of amortization of the reference pool
from scheduled and unscheduled payments. Delevering of the notes
may accelerate due to high prepayment levels in the loan market and/or
collateral sales by the manager, which may have significant impact
on the notes' ratings.
2) 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.
3) Long-dated assets: The presence of assets that mature
beyond the CLO's legal maturity date exposes the deal to liquidation risk
on those assets. Moody's assumes an asset's terminal value upon
liquidation at maturity to be equal to the lower of an assumed liquidation
value (depending on the extent to which the asset's maturity lags that
of the liabilities) and the asset's current market value.
Further information on Moody's analysis of this transaction is available
on www.moodys.com.
REGULATORY DISCLOSURES
Although this credit rating has been issued in a non-EU country
which has not been recognized as endorsable at this date, this credit
rating is deemed "EU qualified by extension" and may still
be used by financial institutions for regulatory purposes until 30 April
2012. Further information on the EU endorsement status and on the
Moody's office that has issued a particular Credit Rating is available
on www.moodys.com.
For ratings issued on a program, series or category/class of debt,
this announcement provides relevant regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides relevant regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides relevant regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
Information sources used to prepare the rating are the following:
parties involved in the ratings, public information, and confidential
and proprietary Moody's Investors Service information.
Moody's did not receive or take into account a third-party
assessment on the due diligence performed regarding the underlying assets
or financial instruments related to the monitoring of this transaction
in the past six months.
Moody's considers the quality of information available on the rated
entity, obligation or credit satisfactory for the purposes of issuing
a rating.
Moody's adopts all necessary measures so that the information it
uses in assigning a 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 the ratings disclosure page on www.moodys.com
for general disclosure on potential conflicts of interests.
Please see the ratings disclosure page on www.moodys.com
for information on (A) MCO's major shareholders (above 5%) and
for (B) further information regarding certain affiliations that may exist
between directors of MCO and rated entities as well as (C) the names of
entities that hold ratings from MIS that have also publicly reported to
the SEC an ownership interest in MCO of more than 5%. A
member of the board of directors of this rated entity may also be a member
of the board of directors of a shareholder of Moody's Corporation;
however, Moody's has not independently verified this matter.
Please see Moody's Rating Symbols and Definitions on the Rating Process
page on www.moodys.com for further information on the meaning
of each rating category and the definition of default and recovery.
Please see ratings tab on the issuer/entity page on www.moodys.com
for the last rating action and the rating history.
The date on which some ratings were first released goes back to a time
before Moody's ratings were fully digitized and accurate data may not
be available. Consequently, Moody's 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 www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Shan Lai
Associate Analyst
Structured Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Min Xu
Vice President - Senior Analyst
Structured Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's assigns rating to $2MM of notes issued by Valhalla CLO, Ltd.
