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07 Jan 2011
Hong Kong, January 07, 2011 -- Moody's Investors Service announced today the following rating action
on the notes issued by Starts (Cayman) Limited. The transaction
is a synthetic CDO referencing a managed portfolio of corporate entities.
Issuer: Starts (Cayman) Limited
.... Series 2005-5 AUD70,000,000
Rated TIGERS Credit-Linked Notes due 2013, Downgraded to
C (sf); previously on February 13, 2009 Downgraded to Ca (sf)
RATINGS RATIONALE
Today's rating action is the result of the overall credit deterioration
of the reference portfolio and the severe losses on the notes due to credit
events since inception.
Since last rating action, the transaction has experienced credit
events on Ambac Financial Group Inc, Bank TuranAlem and CIT Group
Inc.
Together with prior credit events on Federal Home Loan Mortgage Corp.,
Federal National Mortgage Association, Glitnir banki hf, Kaupthing
Bank hf, Landsbanki Islands hf, Lehman Brothers Holdings Inc.
and Washington Mutual, Inc., these more recent credit
events incurred further losses to the notes.
Realized losses on the notes are already above 50% of its size.
Although the final recovery price for Ambac is yet to be determined,
any recovery less than 75% will result in the notes losing the
remainder of its principal amount. As the ISDA auction protocol
for Ambac Financial Group Inc resulted in a final price of 9.5%,
a final recovery price above 50% would be unlikely.
In addition to the quantitative factors that are explicitly modelled,
qualitative factors are part of 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, and specific documentation features.
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.
The principal methodology used in this rating was Moody's Approach to
Rating Corporate Collateralized Synthetic Obligations rating methodology
published in September 2009.
Moody's Investors Service did not receive or take into account a third
party due diligence report on the underlying assets or financial instruments
related to the monitoring of this transaction in the past 6 months.
Due to the impact of revised and updated key assumptions referenced in
"Moody's Approach to Rating Corporate Collateralized Synthetic Obligations",
key model inputs used by Moody's in its analysis may be different from
the manager/arranger's reported numbers. In particular, rating
assumptions for all publicly rated corporate credits in the underlying
portfolio have been adjusted for "Review for Possible Downgrade",
"Review for Possible Upgrade", or "Negative Outlook".
Moody's did not run a separate loss and cash flow analysis other
than the one already done using the CDOROM model. For a description
of the analysis, refer to the methodology and the CDOROM user guide
on Moody's website.
Moody's analysis of corporate CSOs is subject to uncertainties,
the primary sources of which includes complexity, governance and
leverage. Although the CDOROM model capture many of the dynamics
of the Corporate CSO structure, it remains a simplification of the
complex reality. Of greatest concern are (a) variations over time
in default rates for instruments with a given rating, (b) variations
in recovery rates for instruments with particular seniority/security characteristics
and (c) uncertainty about the default and recovery correlations characteristics
of the reference pool. Similarly on the legal/structural side,
the legal analysis although typically based in part on opinions (and sometimes
interpretations) of legal experts at the time of issuance, is still
subject to potential changes in law, case law and the interpretations
of courts and (in some cases) regulatory authorities. Although
the impact of these decisions is mitigated by structural constraints,
anticipating the quality of these decisions necessarily introduces some
level of uncertainty in our assumptions. Given the tranched nature
of Corporate CSO liabilities, rating transitions in the reference
pool may have leveraged rating implications for the ratings of the Corporate
CSO liabilities, thus leading to a high degree of volatility.
All else being equal, the volatility is likely to be higher for
more junior or thinner liabilities. The base case scenario modelled
fits into the central macroeconomic scenario predicted by Moody's of a
sluggish recovery scenario of the corporate universe. Should macroeconomics
conditions evolves towards a more severe scenario such as a double dip
recession, the CSO rating will likely be downgraded to an extent
depending on the expected severity of the worsening conditions.
REGULATORY DISCLOSURES
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, and public information.
Moody's Investors Service considers the quality of information available
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a credit rating.
Moody's adopts all necessary measures so that the information it uses
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Please see ratings tab on the issuer/entity page on Moodys.com
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Please see the ratings disclosure page on our website www.moodys.com
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Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Hong Kong
Kan Leung
Analyst
Structured Finance Group
Moody's Investors Service Hong Kong Ltd.
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077
Tokyo
Koji Kumamaru
MD - Structured Finance
Structured Finance Group
Moody's Japan K.K.
JOURNALISTS: (03) 5408-4110
SUBSCRIBERS: (03) 5408-4100
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077
Moody's downgrades AUD 70m CSO Notes of Starts (Cayman) Limited
No Related Data.
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