Moody's also confirms EUR 319.4m SME CLO notes of S-CORE 2007
London, 11 February 2011 -- Moody's Investors Service announced today the following rating actions
on notes issued by S-CORE 2007-1 GmbH
Issuer: S-CORE 2007-1 GmbH
EUR363.8M A1 Notes, Confirmed at Aaa (sf); previously
on Oct 29, 2010 Aaa (sf) Placed Under Review for Possible Downgrade
EUR91M A2 Notes, Downgraded to Ba1 (sf); previously on Oct
29, 2010 A2 (sf) Placed Under Review for Possible Downgrade
EUR8.85M B Notes, Downgraded to Caa2 (sf); previously
on Oct 29, 2010 Ba2 (sf) Placed Under Review for Possible Downgrade
EUR9.6M C Notes, Downgraded to Caa3 (sf); previously
on Oct 29, 2010 B1 (sf) Placed Under Review for Possible Downgrade
EUR12.4M D Notes, Downgraded to Ca (sf); previously
on Oct 29, 2010 Caa1 (sf) Placed Under Review for Possible Downgrade
EUR19.7M E Notes, Downgraded to Ca (sf); previously
on Oct 29, 2010 Caa3 (sf) Placed Under Review for Possible Downgrade
RATINGS RATIONALE
S-core 2007-1 is a German SME CLO referencing a static portfolio
of 'schuldscheine' loans with bullet maturities between 2012 and 2014.
The Class A notes have been paid down by EUR 44.4 million from
amortisations and excess spread proceeds. The outstanding portfolio
totals EUR 432.8 million of portfolio assets, representing
exposure to 134 loans.
According to Moody's the rating actions are driven by a default rate realised
in the underlying pool higher than expected at last rating action (September
2009). It is also the result of a lower expected rate of recoveries
on defaulted assets in the underlying pool, reflecting the absence
of recoveries observed on defaults to date, and sensitivity of the
results to the recovery assumption. Moody's also noted the
low OC levels for all tranches below tranche A-1 as well as some
limited deterioration in the pool's credit quality compared to the
last rating action, although the WARF has improved since S-core
was placed on watch in October 2010.
S-core 2007 has experienced EUR 23.2 million of defaults
since last rating action (September 2009). Reflecting the higher
default rate in the pool and a corresponding reduction in available excess
spread in the transaction, the principal deficiency ledger (PDL)
has increased to EUR 28.2 million from EUR 7.6 million since
the last action. At the last payment date EUR 364,405 spread
proceeds were available to reduce the PDL. No recoveries on the
EUR 41.2 million cumulative defaults observed in the pool have
been received to date. Once and if available, these recovery
proceeds will be used to pay down the PDL.
In its base case, Moody's analyzed the underlying collateral pool
with a stressed weighted average default probability to scheduled maturity
(25 April 2014) of 8.2%. This is consistent with
the default probability level equivalent to a B1 rating over the weighted
average life of the pool. Moody's also took into account additional
model results based on recovery scenarios below 30% as opposed
to the base case assumption of 30% in the October 2009 action.
Moody's tested the impact of several stress scenarios. Reducing
recovery rates of both the actual and modelled defaulted assets to 15%
of par impacts the model results of the rated tranches by 1 to 2 notches.
The 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 according to a mapping.
The internal ratings provided by Deutsche Bank indicate a pool rating
slightly worse than at last monitoring, although they have improved
since S-core was placed on watch in October 2010.
The key assumptions Moody's used were the following:
1. Default rates for the pool will likely remain at elevated levels,
despite improvements in the German economy.
2. Recoveries on the senior unsecured 'schuldscheine' loans could
be below 30% in the majority of cases.
Sources of additional performance uncertainties include:
1. the extent to which high growth in the German economy in 2010
will be maintained in 2011
2. recovery rates likely to be observed on the defaulted assets
.
The principal methodologies used in this rating were "Moody's Approach
to Rating Collateralized Loan Obligations" published in August 2009,
"Moody's Approach to Rating Corporate Collateralized Synthetic Obligations"
published in September 2009, and "Moody's Approach to Rating CDOs
of SMEs in Europe" published in February 2007.
Under this methodology, Moody's relies on a simulation based framework.
Moody's therefore used CDOROMTM, to generate default and recovery
scenarios for each asset in the portfolio, and then Moody's EMEA
Cash-Flow model in order to compute the associated loss to each
tranche in the structure.
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 six months.
Moody's has analyzed the cash flows to the classes and gave credit to
the limited excess spread available for deleveraging purposes.
Continued defaults in the pool will further reduce the ability of the
transaction to deleverage. Moody's does not expect the PDL
will be paid off before maturity of the transaction.
In addition, Moody's publishes a weekly summary of structured finance
credit, ratings and methodologies, available to all registered
users of our website, at www.moodys.com/SFQuickCheck.
REGULATORY DISCLOSURES
The rating has been disclosed to the rated entity or its designated agents
and issued with no amendment resulting from that disclosure.
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 Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
Moody's Investors Service may have provided Ancillary or Other Permissible
Service(s) to the rated entity or its related third parties within the
three years preceding the Credit Rating Action. Please see the
ratings disclosure page www.moodys.com/disclosures on our
website for further information.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit 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 ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service 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 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.
London
Greg O''Reilly
Associate Analyst
Structured Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
London
Neelam S. Desai
Senior Vice President
Structured Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's Investors Service Ltd.
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Moody's downgrades EUR 141.6m SME CLO notes of S-CORE 2007