USD 11 million of debt securities affected
New York, June 29, 2012 -- Moody's Investors Service announced today that it has confirmed the rating
of the following notes issued by Bristol Bay Funding Ltd.:
U.S. $39,000,000 Class A-1 Floating
Rate Senior Notes Due 2016 (current outstanding balance of $11,126,178),
Confirmed at Aa3 (sf); previously on March 29, 2012 Aa3 (sf)
Placed Under Review for Possible Downgrade.
RATINGS RATIONALE
The transaction is a synthetic collateralized loan obligation referencing
a pool of primarily senior secured loans and was collateralized by an
investment agreement issued by FGIC Capital Market Services, Inc.
and guaranteed by General Electric Capital Corporation ("GECC").
On March 29, 2012, Moody's placed on review for possible downgrade
the Class A-1 Notes in Bristol Bay Funding Ltd. as a result
of the action taken by Moody's to place on review for possible downgrade
the Aa2 long term issuer rating of GECC. Moody's has concluded
its review of GECC's rating, and on April 3, 2012 downgraded
the long term issuer rating of GECC to A1 from Aa2. Following the
downgrade of GECC, the issuer terminated the investment agreement
and withdrew the funds. The funds are currently invested in a custody
account at The Bank of New York Mellon, which has a long term bank
deposit rating of Aa1.
According to Moody's, the confirmation of its rating on the Class
A-1 Notes is a result of the conclusion of its review of GECC's
rating, and the subsequent termination of the investment agreement
between the issuer and FGIC Capital Market Services, Inc.
Moody's explains that the rating of the notes is no longer tied
to GECC's rating, and now relies in part on the credit risks
relating to the issuer's ongoing reinvestment of the funds collateralizing
the notes. In this regard, the collateral manager has the
discretion to invest the funds in accordance with criteria for eligible
investments.
The action also considered the amortization of the reference portfolio.
The swap notional amount has been amortized down by approximately 22%
or $89 million since the last rating action in January 2012.
In addition, Moody's notes that the credit quality of the reference
portfolio has deteriorated since the last rating action. Based
on the April 2012 trustee report, the weighted average rating factor
is currently 2709 compared to 2532 in November 2011.
Furthermore, Moody's notes that the reference portfolio includes
a number of investments in securities that mature after the maturity date
of the notes. Based on Moody's calculation, securities
that mature after the maturity date of the notes currently make up approximately
31% of the reference portfolio compared to 17% in November
2011. These investments potentially expose the notes to market
risk in the event of liquidation at the time of the notes' maturity.
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 underlying reference pool to have a swap notional balance of $323
million, eligible investment balance of $99 million,
defaulted par of $21 million, a weighted average default
probability of 17.9% (implying a WARF of 3168), a
weighted average recovery rate upon default of 47.6%,
and a diversity score of 43. The 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. 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. In each case, historical
and market performance trends and collateral manager latitude for trading
the collateral are also factors.
Bristol Bay Funding Ltd., issued in March 2004, is
a synthetic collateralized loan obligations referencing a pool of primarily
senior secured loans.
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 modeled the transaction using a cash flow model based on
the Binomial Expansion Technique, as described in Section 2.3
of the "Moody's Approach to Rating Collateralized Loan Obligations"
rating methodology published in June 2011.
In addition to the base case analysis described above, Moody's also
performed sensitivity analyses to test the impact on all rated notes of
various default probabilities. 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% (2534)
Class A1: 0
Class A2: +2
Class B: 0
Moody's Adjusted WARF + 20% (3801)
Class A1: -1
Class A2: -2
Class B: -2
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.
Sources of additional performance uncertainties are described below:
1) Amortization of the reference portfolio: The main source of uncertainty
in this transaction is whether amortization of the reference portfolio
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) 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.
4) Exposure to credit estimates: The deal is exposed to a large
number of securities whose default probabilities are assessed through
credit estimates. In the event that Moody's is not provided the
necessary information to update the credit estimates in a timely fashion,
the transaction may be impacted by any default probability stresses Moody's
may assume in lieu of updated credit estimates.
Further information on Moody's analysis of this transaction is available
on www.moodys.com.
REGULATORY DISCLOSURES
The Global Scale Credit Ratings on this press release that are issued
by one of Moody's affiliates outside the EU are endorsed by Moody's
Investors Service Ltd., One Canada Square, Canary Wharf,
London E 14 5FA, UK, 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 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.
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 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
Ramon O. Torres
Senior Vice President
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 confirms the rating of the Class A-1 Notes issued by Bristol Bay Funding Ltd.
