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Rating Action:

Moody's downgrades EUR 109m SME CDO notes of S-CORE 2007

05 Oct 2012

London, 05 October 2012 -- Moody's Investors Service announced today that it has downgraded the ratings of the following notes issued by S-CORE 2007-1 GmbH:

....EUR91M A2 Notes, Downgraded to B3 (sf); previously on Feb 11, 2011 Downgraded to Ba1 (sf)

....EUR8.85M B Notes, Downgraded to Ca (sf); previously on Feb 11, 2011 Downgraded to Caa2 (sf)

....EUR9.6M C Notes, Downgraded to Ca (sf); previously on Feb 11, 2011 Downgraded to Caa3 (sf)

S-core 2007-1 is a German SME CLO referencing a static portfolio of 'schuldscheine' loans mostly with bullet maturities in 2014. As per the July 2012 information report, Class A-1 notes have been paid down to EUR 78.57 million from amortisations and excess spread. The outstanding portfolio totals EUR 177.88 million of portfolio assets, representing exposure to 49 loans.

RATINGS RATIONALE

Today's rating actions are driven by recent additional defaults of EUR 15 million and a lower expected mean recovery rate on defaulted assets in the underlying pool.

Internal ratings assigned to the loan obligors by the originator Deutsche Bank are used to determine their default probabilities. These internal ratings are converted to Moody's rating scale using a mapping. The average credit quality of the June 2012 pool before application of stresses indicate a pool rating marginally better than at last rating action.

S-CORE 2007 has experienced EUR 17.0 million of defaults since last rating action in February 2011. Reflecting the high default rate in the pool and a corresponding reduction in excess spread available to deleverage, the principal deficiency ledger (PDL) has increased to EUR 42.2 million from EUR 28.2 million since last rating action. As per the quarterly information reports available since closing, total recoveries on defaulted assets amount to EUR 0.97 million. This works out to a very modest recovery rate of 2.35% on EUR 41.2 million of defaults which occurred earlier than 2011, and less than 2% on cumulative defaults of EUR 58.2 million till date.

The current PDL of EUR 42.2 million fully covers the principal balances of Classes D, E and F, and a significant portion of Class C principal. In addition assets in the current pool which map to Ca/Caa3 credit quality amount to EUR 6.9 m; were these to default, Class B notes may not receive full principal repayment.

In its base case analysis, Moody's stressed the mapped ratings by one notch because (i) they are based on lagged financial data, and (ii) the mapping is more than two years old. This yielded a default probability consistent with an average B2 rating for the collateral pool. Whereas at last rating action Moody's assumed simulated recoveries with a mean of 15% on defaulted assets, today's rating actions are based on a low single digit mean recovery assumption which is more in line with observed recoveries.

In the process of determining the final ratings, Moody's took into account the results of the following sensitivity run:

1) Recovery rates of 0% and 5%.

These runs generated model results that are within one notch of the base case result.

Moody's notes that this transaction is subject to a high level of macroeconomic uncertainty, as evidenced by uncertainties of credit conditions in the general economy.

Sources of additional performance uncertainties include:

1) Reduced portfolio granularity: The performance of the portfolio depends to a large extent on the credit conditions of a few large obligors that are rated non investment grade, especially when they experience a jump to default. The realization of higher than anticipated default rate due to the weakness of large obligors would negatively impact the ratings, particularly given the pool's reduced granularity as a result of large scheduled amortisations during the first half of 2012.

2) Recovery rates on defaults: Realised recoveries on defaults will impact the amount of cash available for repayment of the notes. Observed recoveries to date have been poor; any significant improvement in recoveries in the future would have a positive impact on the ability of the issuer to pay the amounts due on the issued notes, in particular the senior classes.

The methodologies used in this rating were "Moody's Approach to Rating CDOs of SMEs in Europe" published in February 2007, and "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 these methodologies.

In rating this transaction, Moody's used CDOROM to simulate the default scenarios for each asset in the portfolio. Losses on the portfolio derived from those scenarios have then been applied as an input in the cash flow model to determine the loss for each tranche. In each scenario, the corresponding loss for each class of notes is calculated given the incoming cash flows from the assets and the outgoing payments to third parties and note-holders. By repeating this process and averaging over the number of simulations, an estimate of the expected loss borne by the notes is derived. As such, Moody's analysis encompasses the assessment of stressed scenarios.

In addition to the quantitative factors that are explicitly modeled, 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, 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.

REGULATORY DISCLOSURES

The rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

Information sources used to prepare the 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.

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.

Moody's Investors Service may have provided Ancillary or Other Permissible Service(s) to the rated entity or its related third parties within the two years preceding the credit rating action. Please see the special report "Ancillary or other permissible services provided to entities rated by MIS's EU credit rating agencies" on the ratings disclosure page on our website www.moodys.com for further information.

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.

Please see the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests.

Please see the ratings disclosure page on www.moodys.com for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter.

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.

Raja Jawanteswara Iyer
Vice President - Senior Analyst
Structured Finance Group
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

Neelam S. Desai
Senior Vice President
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
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 downgrades EUR 109m SME CDO notes of S-CORE 2007
No Related Data.
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