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I AGREE
22 Sep 2011
USD $24.5 million of debt securities affected
New York, September 22, 2011 -- Moody's Investors Service announced today that it has confirmed the ratings
of the following notes issued by Waveland-Ingots, Ltd.:
U.S. $14,500,000 Class B-1 Floating
Rate Interest Deferrable Secured Notes Due June 21, 2015,
Confirmed at Aa1 (sf); previously on June 22, 2011 Aa1 (sf)
Placed Under Review for Possible Upgrade;
U.S. $10,000,000 Class B-2 Fixed
Rate Interest Deferrable Secured Notes Due June 21, 2015,
Confirmed at Aa1 (sf); previously on June 22, 2011 Aa1 (sf)
Placed Under Review for Possible Upgrade.
RATINGS RATIONALE
According to Moody's, the rating actions taken on the notes
are primarily a result of applying Moody's revised CLO assumptions described
in "Moody's Approach to Rating Collateralized Loan Obligations"
published in June 2011. The primary changes to the modeling assumptions
include (1) a removal of the temporary 30% default probability
macro stress implemented in February 2009 as well as (2) increased BET
liability stress factors and increased recovery rate assumptions.
The actions also reflect consideration of delevering of the senior notes
since the rating action in April 2011. Moody's notes that
the Class A-1 Notes and Class A-2 Notes have been paid down
by $6.1 million and $15.3 million (approximately
74%) , respectively, since the rating action in April
2011. As a result of the delevering, the overcollateralization
ratios have increased. Based on the latest trustee report dated
August 10, 2011, the Class A and Class B overcollateralization
ratios are reported at 429.6% and 168.4%,
respectively, versus March 2010 levels of 229.9% and
143.4%, respectively. Moody's notes that
these reported overcollateralization ratios do not reflect the impact
of the recent paydown of the Class A-1 Notes and Class A-2
Notes, which were reduced by $2.4 million and $6.0
million, respectively, on the September 21, 2011 payment
date.
Notwithstanding the above mentioned overcollateralization improvements,
Moody's notes that the Class B interest coverage ratios have declined
over time to the current level of 166.8%. The decline
in the Class B interest coverage ratio is indicative of a reduction in
interest proceeds in the transaction relative to the interest due on the
Class B notes. The reduction in interest proceeds potentially exposes
the Class B notes to risk of payment default in the future.
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 collateral pool to have a performing par and principal
proceeds balance of $59.9 million, defaulted par of
$1.0 million, a weighted average default probability
of 13.98% (implying a WARF of 2829), a weighted average
recovery rate upon default of 50.45%, and a diversity
score of 21. 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.
Waveland-Ingots, Ltd., issued in June 2003,
is a collateralized loan obligation backed primarily by a portfolio of
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 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.
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 2013 and 2015 which may create challenges for issuers
to refinance. CDO notes' performance may also be impacted
by 1) the manager's investment strategy and behavior 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) Delevering: The main source of uncertainty in this transaction
is whether delevering from unscheduled principal proceeds will continue
and at what pace. Delevering 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.
Further information on Moody's analysis of this transaction is available
on www.moodys.com. In addition, Moody's publishes
a weekly summary of structured finance credit, ratings and methodologies,
available to all registered users of our web site, at www.moodys.com/SFQuickCheck.
REGULATORY DISCLOSURES
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.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, public information, and confidential
and proprietary Moody's Investors Service information.
Moody's did not receive or take into account a third party assessment
on the due diligence performed regarding the underlying assets or financial
instruments related to the monitoring of this transaction in the past
six months.
Moody's considers the quality of information available on the rated
entity, obligation or credit satisfactory for the purposes of issuing
a rating.
Alena Chen
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 ratings of CLO notes issued by Waveland-Ingots, Ltd.
No Related Data.
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