New York, January 11, 2011 -- Moody's Investors Service announced that it has assigned the following
ratings to the loans originated by 299 Credit Finance LLC (the "Borrower"):
U.S. $ 33,280,088 Class A-R Loans
due December 15, 2017 ("Class A-R Loans"),
Assigned Aaa (sf),
U.S. $47,000,000 Class A-T Loans
due December 15, 2017 ("Class A-T Loans"),
Assigned Aaa (sf).
RATINGS RATIONALE
Moody's ratings of the loans address the ultimate cash receipt of all
interest and principal payments required by the transaction's governing
documents, and are based on the expected loss posed to the lenders
relative to the promise of receiving the present value of such payments.
The ratings reflect the risks due to defaults on the underlying portfolio
of collateral loans, the transaction's legal structure, and
the characteristics of the underlying assets.
299 Credit Finance LLC is a financing vehicle that is structured much
like a cash-flow CLO. The transaction is static and collateralized
primarily by loans to small and medium enterprise ("SME")
obligors. The closing pool is composed of mostly senior secured
first lien loans. The underlying pool is also invested in second
lien loans, unsecured loans and subordinated loans, or participation
interests in such loans. The underlying portfolio is 100%
ramped as of the closing date.
The Moody's rating factors for the collateral loans in this transaction
are derived from Moody's credit estimates ("CE") rather than
from Moody's public ratings. All of the credit estimates except
two credits were originally assigned or reviewed by Moody's credit estimate
team within the past six months. As part of its ongoing surveillance
of the transaction, Moody's will receive financial statements and
data on the collateral loans, and credit estimates will be updated
at least annually or on a more frequent basis. In addition,
trustee reports will include each obligor name and the date of the last
credit estimate update.
299 Credit Finance LLC, an affiliate of Cerberus Capital Management,
L.P., will act as the Borrower. The Borrower
may engage in sale of the underlying collateral loan that are defaulted,
credit improved, or credit risk. However, no purchases
of additional collateral loans are permitted. The Borrower may
also sell at any time equity securities received after a restructuring
or a similar event.
In accordance with the provisions of the governing documents, the
lenders will receive interest and principal in order of seniority.
The transaction incorporates par and interest coverage tests, which,
when triggered, divert interest and principal proceeds to pay down
the loans in order of seniority, or, in case of the Class
A-R Loans, the transaction will utilize a mechanism to reserve
sufficient amounts in the future funding reserve account to be able to
meet its funding obligations with respect to the revolving and delayed
funding loans.
Solely for the purpose of the WARF calculation, our analysis treats
ratings of underlying collateral securities on "review for possible downgrade"
as if they were two notches lower and those with a "negative outlook"
as if they were one notch lower. Moody's also increased its default
probability assumption by 30%. For each CE where the related
exposure constitutes more than 3% of the collateral pool,
Moody's applied a 2-notch equivalent assumed downgrade (but
only on the CEs representing in aggregate the largest 30% of the
pool) in lieu of the aforementioned stresses. Notwithstanding the
foregoing, in all cases the lowest assumed rating equivalent is
Caa3.
For modeling purposes, Moody's used the following base-case
assumptions:
Diversity of 28
WARF (reflecting 30% default probability stress and single obligor
concentration risk) of 6522
Weighted Average Spread of 8.54%
Weighted Average Coupon of 1.09%
Weighted Average Recovery Rate of 39%
Weighted Average Life of 2.2 years
The revised assumptions that have been applied to all credits in the underlying
portfolio are described in the press release titled "Moody's updates key
assumptions for rating CLOs," dated February 4, 2009 and in
the publication titled "CLO Ratings Surveillance Brief --
Second Quarter 2009," dated July 17, 2009.
Together with the refined set of modeling assumptions above, Moody's
conducted sensitivity analysis, to determine the impact on the ratings
of the Loans of a higher WARF to capture potential downward migration
of the credit quality of the underlying pool. Below is the summary
of the impact of a higher default probability (expressed in terms of WARF
level) on all rated Loans (shown in terms of the number of notches'
difference versus the current model output), assuming that all other
factors are held equal:
Moody's Adjusted WARF -20% (7826)
Class A-R Loans 0
Class A-T Loans 0
Moody's also analyzed the sensitivity of the ratings to the assumed
recovery rates. Below is the summary of the impact of assuming
a lower weighted average recovery rate on all rated Loans (shown in terms
of the number of notches' difference versus the current model output),
assuming that all other factors are held equal:
Moody's Adjusted WARR -5% (34%)
Class A-R Loans 0
Class A-T Loans 0
Moody's also analyzed the sensitivity of the ratings to the assumed
diversity score. Below is the summary of the impact of assuming
a lower diversity score on all rated Loans (shown in terms of the number
of notches' difference versus the current model output), assuming
that all other factors are held equal:
Moody's Adjusted Diversity -5 (23)
Class A-R Loans 0
Class A-T Loans 0
The principal methodology used in this rating was "Moody's Approach
to Rating Collateralized Loan Obligations" published in August 2009.
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 Investors Service did not receive or take into account a
third party due diligence report on the underlying assets or financial
instruments in this transaction.
The V Score for this transaction is Medium/High. This V Score has
been assigned in a manner similar to the Medium/High V score assigned
for the global cash flow CLO sector, as described in the special
report titled, "V Scores and Parameter Sensitivities in the Global
Cash Flow CLO Sector," (the "CLO V Score Report") dated July 17,
2009, available on www.moodys.com. The primary
underlying collateral assets for 299 Credit Finance LLC are SME corporate
loans, which receive Moody's credit estimates, rather than
publicly rated corporate loans. This distinction is an important
factor in the determination of this transaction's V score, since
loans publicly rated by Moody's are the basis for the CLO V Score Report.
Several scores for sub-categories of the V score differ from the
CLO sector benchmark scores. The scores for the quality of historical
data for U.S. SME loans and for disclosure of collateral
pool characteristics and collateral performance reflect higher volatility.
This results from lack of a centralized default database for SME loans,
as well as obligor-level information for SME loans being more limited
and less frequently provided to Moody's than that for publicly rated companies.
Finally, since the transaction is a financing vehicle, a better
than typical alignment of interests exists. In combination,
these characteristic result in a composite V Score of "Medium/High" uncertainty,
the same as that of the benchmark CLO V Score.
Moody's V Scores provide a relative assessment of the quality of available
credit information and the potential variability around the various inputs
to a rating determination. The V Score ranks transactions by the
potential for significant rating changes owing to uncertainty around the
assumptions due to data quality, historical performance, the
level of disclosure, transaction complexity, the modeling
and the transaction governance that underlie the ratings. V Scores
apply to the entire transaction, rather than individual tranches.
REGULATORY DISCLOSURES
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
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 assigning
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
Yu Sun
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Eun Choi
MD - Structured Finance
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 assigns ratings to CLO notes issued by 299 Credit Finance LLC
