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Related Issuers
Rating Action:

Moody's downgrades EUR 141.6m SME CLO notes of S-CORE 2007

11 Feb 2011

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.

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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
No Related Data.
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