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19 Jul 2010
New York, July 19, 2010 -- Moody's Investors Service announced that it has assigned the following
ratings to the notes issued by Golub Capital BDC 2010-1 LLC (the
"Issuer" or "Golub 2010-1"):
U.S. $174,000,000 Class A Senior Secured
Floating Rate Notes due 2021, assigned Aaa
U.S. $10,000,000 Class B Senior Secured
Floating Rate Notes due 2021, assigned Aa2.
Moody's ratings of the notes address the expected loss posed to
noteholders. The ratings reflect the risks due to defaults on the
underlying portfolio of loans, the transaction's legal structure,
and the characteristics of the underlying assets.
Golub 2010-1 is a cash-flow small to medium enterprise ("SME")
CLO with a six month ramp-up period and a three year reinvestment
period which may be extended an additional two years if certain criteria
are met. While the transaction is expected to be collateralized
primarily by first lien senior secured SME corporate loans, there
is no restriction on the amount of broadly syndicated corporate loans
in the collateral pool. The closing portfolio has in excess of
10% broadly syndicated loans. Initially, a portion
of the portfolio may consist of participations of loans from Golub Capital
Master Funding LLC, an unrated affiliate of the Issuer. These
participations may only be held for a period of up to 60 days from closing.
Subsequently, no more than 5% of the pool may consist of
participations, which must meet Moody's counterparty criteria.
Up to 5% of the pool may consist of second lien corporate loans.
This transaction serves as a source of financing for Golub Capital BDC
Inc. (the "Servicer").
The Moody's rating factors for the collateral loans in this transaction
may be derived from Moody's credit estimates rather than from Moody's
public ratings. All credit estimates 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 every twelve months.
Subject to certain conditions, up to 20% of the loans may
receive credit estimates derived using Moody's/KMV RiskCalc.
In addition, trustee reports will include each obligor name and
the date of the last credit estimate update.
The two tranches of rated notes will be paid interest and principal prior
to any payments made to the unrated subordinated notes as per the respective
payment waterfalls. The transaction contains both a par coverage
test and an interest coverage test, which, if triggered,
divert interest proceeds to pay down the notes sequentially. Further,
during the reinvestment period, the interest diversion test,
if triggered, will divert a specified amount of interest proceeds
which will be used to purchase additional collateral obligations.
The Servicer has the discretion, under limited circumstances,
to replace with eligible performing loans collateral loans deemed to be
credit impaired or materially modified. Following such substitution,
the collateral pool's coverage tests, collateral quality tests,
and concentration limitations must be maintained or improved. The
substitute loan must also be of at least the same priority, market
value, and outstanding principal balance as the loan being substituted.
While the Servicer is not required to effect these par-for-par
substitutions, such substitutions may provide additional credit
support to the rated notes.
Solely for the purpose of the WARF calculation, our analysis treated
ratings of the underlying collateral loans 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 a factor of 30%.
For modeling purposes, Moody's used the following base-case
Diversity of 31
WARF (reflecting 30% default probability stress) of 4360
Weighted Average Spread of 4.50%
Weighted Average Recovery Rate of 43.0%
Weighted Average Life of 6.50 years
Reinvestment period of 3.0 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.
The principal methodologies used in rating and monitoring the transaction
are described in the following publications, which can be found
at www.moodys.com in the Rating Methodologies sub-directory
under the Research & Ratings tab:
Moody's Approach to Rating Collateralized Loan Obligations (8/12/2009)
Updated Approach to the Usage of Credit Estimates in Rated Transactions
Other methodologies and factors that may have been considered in the process
of rating this issue can also be found in the Rating Methodologies sub-directory
on Moody's website. 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.
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 Golub 2010-1 are likely to be
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.
MD - Structured Finance
Structured Finance Group
Moody's Investors Service
David H. Burger
Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service
Moody's assigns ratings to collateralized loan obligation notes issued by Golub Capital BDC 2010-1 LLC
No Related Data.
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