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Announcement:

Moody's confirms EUR 63.68m CLO notes of North Westerly CLO I

24 Aug 2011

London, 24 August 2011 --

Moody's Investors Service announced today that it has confirmed the ratings of the following notes issued by North Westerly CLO I:

....EUR32M Class II Deferrable Interest Floating Rate Notes due 2016, Confirmed at Baa1 (sf); previously on Jun 22, 2011 Baa1 (sf) Placed Under Review for Possible Upgrade

....EUR7.5M Class III-A Deferrable Interest Fixed Rate Notes due 2016, Confirmed at Ba3 (sf); previously on Jun 22, 2011 Ba3 (sf) Placed Under Review for Possible Upgrade

....EUR3M Class III-B Deferrable Interest Floating Rate Notes due 2016, Confirmed at Ba3 (sf); previously on Jun 22, 2011 Ba3 (sf) Placed Under Review for Possible Upgrade

....US$5.27M Class III-C Deferrable Interest Floating Rate Notes due 2016, Confirmed at Ba3 (sf); previously on Jun 22, 2011 Ba3 (sf) Placed Under Review for Possible Upgrade

....EUR6M (current outstanding EUR5M) Class IV-A Deferrable Interest Fixed Rate Notes due 2016, Confirmed at Caa3 (sf); previously on Jun 22, 2011 Caa3 (sf) Placed Under Review for Possible Upgrade

....EUR12M (current outstanding EUR10M) Class IV-B Deferrable Interest Floating Rate Notes due 2016, Confirmed at Caa3 (sf); previously on Jun 22, 2011 Caa3 (sf) Placed Under Review for Possible Upgrade

....EUR5M (current rated balance Approx. EUR1.67M) Class Q Combination Notes due 2016, Confirmed at Ba1 (sf); previously on Jun 22, 2011 Ba1 (sf) Placed Under Review for Possible Upgrade

The ratings of the Combination Notes address the repayment of the Rated Balance on or before the legal final maturity, where the 'Rated Balance' is equal at any time to the principal amount of the Combination Note on the Issue Date minus the aggregate of all payments made from the Issue Date to such date, either through interest or principal payments. The Rated Balance may not necessarily correspond to the outstanding notional amount reported by the trustee.

RATINGS RATIONALE

North Westerly CLO I B.V., issued in June 2003, is a multi currency Collateralised Loan Obligation ("CLO") backed by a portfolio of mostly high yield European loans. The portfolio is managed by NIBC Bank N.V. This transaction has passed the reinvestment period in June 2008. It is predominantly composed of senior secured loans.

According to Moody's, the confirmation of the ratings of the notes reflect the application of Moody's revised CLO assumptions described in "Moody's Approach to Rating Collateralized Loan Obligations" published in June 2011.

Today's confirmations reflect key changes to the modelling assumptions, which incorporate (1) a removal of the temporary 30% default probability macro stress implemented in February 2009, (2) increased BET liability stress factors as well as (3) change to a fixed recovery rate modelling framework. Additional changes to the modelling assumptions include (1) standardizing the modelling of collateral amortization profile, (2) changing certain credit estimate stresses aimed at addressing the lack of forward looking indicators as well as time lags in receiving information required for credit estimate updates, and (3) adjustments to the equity cash-flows haircuts applicable to combination notes.

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 the portfolio par amount, WARF, 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 and principal proceeds balance of EUR 158.49 million, defaulted par of EUR 437,733 a weighted average recovery rate upon default of 44.54% for a Aaa liability target rating, a diversity score of 23 and a weighted average spread of 3.02%. Moody's used a weighted average default probability of 25.45% (consistent with a WARF of 4024), which represent a WARF level very similar to that used upon last rating action on June 2011. 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. For a Aaa liability target rating, Moody's assumed that 86% of the portfolio exposed to senior secured corporate assets would recover 50% upon default, while the remainder non first-lien loan corporate assets would recover 10%. In each case, historical and market performance trends and collateral manager latitude for trading the collateral are also relevant factors. 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.

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 2015 which may create challenges for issuers to refinance. CLO notes' performance may also be impacted by 1) the manager's investment strategy and behaviour 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) Deleveraging: The main source of uncertainty in this transaction is whether delevering from unscheduled principal proceeds will continue and at what pace. Deleveraging 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) Low diversity score: Due to the transaction being in the amortisation phase, the portfolio is becoming more concentrated in smaller number of issuers and the trend will continue till the maturity of the transaction. This in turn may have significant impact on the note's ratings.

3) Moody's also notes that around 87% of the collateral pool consists of debt obligations whose credit quality has been assessed through Moody's credit estimates. In addition approximately 49% of the current portfolio is comprised of obligor with an exposure bigger than 3% of the portfolio and whose credit quality is accessed through credit estimates. Large single exposures (bigger than 3%) to obligors bearing a credit estimate have been subject to a stress applicable to concentrated pools (up to 30% of the portfolio) as per the report titled "Updated Approach to the Usage of Credit Estimates in Rated Transactions" published in October 2009. Therefore, the WARF modelled by Moody's is significantly higher than the WARF reported by the Trustee.

The principal methodology used in this rating was "Moody's Approach to Rating Collateralized Loan Obligations" published in June 2011. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Moody's modelled 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. The underlying collateral pool in this transaction exhibits a low level of diversity. In order to capture the potential impact resulting from asset heterogeneity within the pool, Moody's supplemented its BET analysis by using CDOROMTM in order to simulate default scenarios. Those default scenarios have then been applied as an input in a cash flow model.

The cash flow model used for this transaction, whose description can be found in the methodology listed above, is Moody's EMEA Cash-Flow model.

In addition to the quantitative factors that are explicitly modelled, qualitative factors are part of the 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, specific documentation features, the collateral manager's track record, and the potential for selection bias in the portfolio. 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.

London
Angela Jung
Associate Analyst
Structured Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Paris
Guillaume Jolivet
Vice President - Senior Analyst
Structured Finance Group
Moody's France SAS
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's confirms EUR 63.68m CLO notes of North Westerly CLO I
No Related Data.
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