New York, October 30, 2020 -- Moody's Investors Service has confirmed the ratings on the following notes
issued by MJX Venture Management II LLC (the "Issuer" or "CLO Risk Retention
Transaction"):
U.S. $1,165,000 Series C/Class D Notes,
Confirmed at Baa1 (sf); previously on April 17, 2020 Baa1 (sf)
Placed Under Review for Possible Downgrade
U.S. $1,025,000 Series C/Class E Notes,
Confirmed at Ba1 (sf); previously on April 17, 2020 Ba1 (sf)
Placed Under Review for Possible Downgrade
The Series C/Class D Notes and the Series C/Class E Notes are referred
to herein, collectively, as the "Confirmed Notes."
These actions conclude the review for downgrade initiated on April 17,
2020 on the Series C/Class D Notes and Series C/Class E Notes and and
also reflect a correction to the cashflow modeling of the transaction.
The Series C/Class D Notes and Series C/Class E Notes, together
with the other notes issued by the Issuer (the "Rated Notes"), are
collateralized primarily by 5% of certain rated notes (the "Underlying
CLO Notes") issued by Venture 28A CLO, Limited (the "Underlying
CLO"). The Rated Notes were originally issued in July 2017,
and partially re-priced in August 2020, in order to comply
with the retention requirements of the US and EU Risk Retention Rules.
RATINGS RATIONALE
Despite the credit quality deterioration stemming from the coronavirus
outbreak, Moody's concluded that the expected losses on the Confirmed
Notes continue to be consistent with the notes' current ratings
after taking into account the Underlying CLO's latest portfolio,
the Issuer's relevant structural features and its actual over-collateralization
(OC) levels. Consequently, Moody's has confirmed the ratings
on the Confirmed Notes.
These rating actions also reflect a correction to the cashflow modeling
of the transaction. In prior rating actions, the amount reserved
by the transaction's cash trap account was incorrectly modeled to
exclude current period deferred interest received from the Underlying
CLO notes. As a result, in scenarios where a cash trap mechanism
is triggered, the model incorrectly estimated the amounts available
to support the deal. Prior rating actions also reflected incorrect
modeling of deferred senior management fees in certain scenarios.
These errors have now been corrected, and today's rating action
reflects this change.
According to the September 2020 trustee report [1], the weighted
average rating factor (WARF) for the Underlying CLO was reported at 2990,
compared to 2769 reported in the March 2020 trustee report [2].
Moody's calculation also showed the WARF was passing the test level
of 3050 reported in the September 2020 trustee report [3].
Based on Moody's calculation, the proportion of obligors in
the Underlying CLO portfolio with Moody's corporate family or other
equivalent ratings of Caa1 or lower (adjusted for negative outlook or
watchlist for downgrade) was approximately 16.4% as of September
2020. Nevertheless, Moody's noted that all the OC tests,
as well as the interest reinvestment test in the Underlying CLO were recently
reported [4] as passing.
Moody's modeled the transaction using a cash flow model based on
the Binomial Expansion Technique, as described in "Moody's Global
Approach to Rating Collateralized Loan Obligations."
For modeling purposes, Moody's used the following base-case
assumptions for the Underlying CLO:
Par amount and principal proceeds balance: $407,061,139
Defaulted Securites: $10,145,046
Diversity Score: 104
Weighted Average Rating Factor (WARF): 3003
Weighted Average Life (WAL): 4.64 years
Weighted Average Spread (WAS): 3.70%
Weighted Average Recovery Rate (WARR): 46.90%
Par haircut in OC tests and interest diversion test: 0.28%
Finally, Moody's notes that it also considered the information in
the October 2020 trustee report[5] which became available prior to
the release of this announcement.
In consideration of the current high uncertainties around the global economy
and the ultimate performance of the Underlying CLO portfolio and the Underlying
CLO Notes, Moody's conducted a number of additional sensitivity
analyses representing a range of outcomes that could diverge, both
to the downside and the upside, from our base case. Some
of the additional scenarios that Moody's considered in its analysis
of the transaction include, among others: additional near-term
defaults of companies facing liquidity pressure; additional OC par
haircuts to account for potential future downgrades and defaults resulting
in an increased likelihood of cash flow diversion to senior notes of the
Underlying CLO; and some improvement in WARF as the US economy gradually
recovers in the second half of the year and corporate credit conditions
generally stabilize.
Factors that Would Lead to an Upgrade or Downgrade of the Ratings:
The performance of the Rated Notes is subject to uncertainty in the performance
of the related CLO's underlying portfolio, which in turn depends
on economic and credit conditions that may change. In particular,
the length and severity of the economic and credit shock precipitated
by the global coronavirus pandemic will have a significant impact on the
performance of the securities. The CLO manager's investment decisions
and management of the Underlying CLO will also affect the performance
of the Rated Notes.
The principal methodology used in these ratings was "Moody's Global Approach
to Rating Collateralized Loan Obligations" published in August 2020
and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1235535.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
Please note that a Request for Comment was published in which Moody's
requested market feedback on potential revisions to one or more of the
methodologies used in determining these Credit Ratings. If the
revised methodologies are implemented as proposed, it is not currently
expected that the Credit Ratings referenced in this press release will
be affected. Request for Comments can be found on the rating methodologies
page on www.moodys.com
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
The analysis relies on an assessment of collateral characteristics to
determine the collateral loss distribution, that is, the function
that correlates to an assumption about the likelihood of occurrence to
each level of possible losses in the collateral. As a second step,
Moody's evaluates each possible collateral loss scenario using a
model that replicates the relevant structural features to derive payments
and therefore the ultimate potential losses for each rated instrument.
The loss a rated instrument incurs in each collateral loss scenario,
weighted by assumptions about the likelihood of events in that scenario
occurring, results in the expected loss of the rated instrument.
Moody's quantitative analysis entails an evaluation of scenarios
that stress factors contributing to sensitivity of ratings and take into
account the likelihood of severe collateral losses or impaired cash flows.
Moody's weights the impact on the rated instruments based on its
assumptions of the likelihood of the events in such scenarios occurring.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security 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 certain
regulatory disclosures in relation to the credit rating action on the
support provider and in relation to each particular credit rating action
for securities that derive their credit ratings from the support provider's
credit rating. For provisional ratings, this announcement
provides certain 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.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entity or its designated
agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy
for Designating and Assigning Unsolicited Credit Ratings available on
its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the EU and is endorsed
by Moody's Deutschland GmbH, An der Welle 5, Frankfurt
am Main 60322, Germany, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that issued the credit rating is available on www.moodys.com.
REFERENCES/CITATIONS
[1] Trustee report 10 September 2020
[2] Trustee report 11 March 2020
[3] Trustee report 10 September 2020
[4] Trustee report 10 September 2020
[5] Trustee report 07 October 2020
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.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Shan Lai
Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Leon Mogunov
Associate Managing Director
Structured Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
