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Rating Action:

Moody's downgrades EUR 39.5m CLO notes of Eurocredit CDO IV B.V.

07 Feb 2013

Moody's also affirms EUR 128m Class A1 And A2 notes

London, 07 February 2013 -- Moody's Investors Service announced today that it has taken the following rating actions on the notes issued by Eurocredit CDO IV B.V.

Issuer: Eurocredit CDO IV B.V.

....EUR8.5M Class B-1 Senior Secured Deferrable Floating Rate Notes due 2020, Downgraded to Ba1 (sf); previously on Aug 19, 2011 Upgraded to Baa2 (sf)

....EUR12.5M Class B-2 Senior Secured Deferrable Fixed Rate Notes due 2020, Downgraded to Ba1 (sf); previously on Aug 19, 2011 Upgraded to Baa2 (sf)

....EUR0.75M Class C-1 Senior Secured Deferrable Floating Rate Notes due 2020, Downgraded to B2 (sf); previously on Aug 19, 2011 Upgraded to Ba3 (sf)

....EUR17.75M Class C-2 Senior Secured Deferrable Fixed Rate Notes due 2020, Downgraded to B2 (sf); previously on Aug 19, 2011 Upgraded to Ba3 (sf)

Moody's also affirmed the rating of the Class A1 and A2 notes issued by Eurocredit CDO IV B.V.

....EUR252M (Current Outstanding Balance EUR105.02M) Class A-1 Senior Secured Floating Rate Notes due 2019, Affirmed Aaa (sf); previously on Aug 19, 2011 Upgraded to Aaa (sf)

....EUR23M Class A-2 Senior Secured Floating Rate Notes due 2019, Affirmed Aa3 (sf); previously on Aug 19, 2011 Upgraded to Aa3 (sf)

Eurocredit CDO IV B.V, issued in November 2004, is a Collateralised Loan Obligation ("CLO") backed by a portfolio of mostly senior secured European loans. The portfolio is managed Intermediate Capital Managers. The reinvestment period of this transaction ended in February 2010.

RATINGS RATIONALE

According to Moody's, the rating actions taken on the notes result primarily from a credit deterioration in the underlying collateral pool, primarily reflected in an increase in defaults and a higher concentration in obligors rated Caa1 and below.

Amortisation of the Class A1 Note has improved the overcollateralization ("OC") ratios for the Class A and Class B Notes. However, the increase in defaults and in the proportion of obligors rated Caa1 and below eroded the OC ratios for the Class C notes. As of the latest trustee report dated December 2012, the Class A, Class B and Class C overcollateralization ratios are reported at 136.85%, 117.56% and 104.58%, respectively, versus July 2011 levels of 127.16%, 116.23% and 108.06% respectively.

In its base case, Moody's analyzed the underlying collateral pool to have a performing par and principal proceeds balance of EUR 175.84 million, a defaulted par of EUR 15.23 million, a weighted average default probability of 25.73% (consistent with a WARF of 3,945), a weighted average recovery rate upon default of 40.99% for a Aaa liability target rating, a diversity score of 25 and a weighted average spread of 3.61%. 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. For a Aaa liability target rating, Moody's assumed that 77.48% of the portfolio exposed to senior secured corporate assets would recover 50% upon default, while the remainder non first-lien loan corporate assets would recover 10%. In each case, historical and market performance trends and collateral manager latitude for trading the collateral are also relevant factors. These 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.

In addition to the base case analysis described above, Moody's also performed sensitivity analyses on key parameters for the rated notes:

(1) Deterioration of credit quality to address the refinancing and sovereign risks -- Approximately 32.35% of the portfolio are rated B3 and below and maturing between 2014 and 2016, which may create challenges for issuers to refinance. Approximately 8.18% of the portfolio are exposed to obligor located in Ireland, Italy and Spain. Moody's considered the scenario where the WARF of the portfolio was increased to 4,442 by forcing to Ca the credit quality of 25% of such exposures subject to refinancing or sovereign risks. This scenario generated model outputs that were within one notch from the base case results.

Moody's notes that this transaction is subject to a high level of macroeconomic uncertainty, which could negatively impact the ratings of the notes, as evidenced by 1) uncertainties of credit conditions in the general economy and 2) the large concentration of speculative-grade debt maturing between 2014 and 2016 which may create challenges for issuers to refinance. CLO notes' performance may also be impacted either positively or negatively by 1) the collateral manager's behaviour 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) Portfolio Amortisation: 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 liquidation agent, 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.

3) Moody's also notes that around 67% of the collateral pool consists of debt obligations whose credit quality has been assessed through Moody's credit estimates. Large single exposures to obligors bearing a credit estimate have been subject to a stress applicable to concentrated pools as per the report titled "Updated Approach to the Usage of Credit Estimates in Rated Transactions" published in October 2009.

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.

Under this methodology, Moody's used its Binomial Expansion Technique, whereby the pool is represented by independent identical assets, the number of which is being determined by the diversity score of the portfolio. The default and recovery properties of the collateral pool are incorporated in a cash flow model where the default probabilities are subject to stresses as a function of the target rating of each CLO liability being reviewed. The default probability range 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 and jurisdiction of the assets in the collateral pool.

In addition to the quantitative factors that are explicitly modelled, 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, the collateral manager's track record, 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.

The cash flow model used for this transaction, whose description can be found in the methodology listed above, is Moody's CDOEdge model.

This model was used to represent the cash flows and determine the loss for each tranche. The cash flow model evaluates all default scenarios that are then weighted considering the probabilities of the binomial distribution assumed for the portfolio default rate. In each default 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 noteholders. Therefore, the expected loss or EL for each tranche is the sum product of (i) the probability of occurrence of each default scenario; and (ii) the loss derived from the cash flow model in each default scenario for each tranche. Therefore, Moody's analysis encompasses the assessment of stressed scenarios.

On 21 August 2012, Moody's released a Request for Comment seeking market feedback on proposed adjustments to its modelling assumptions. These adjustments are designed to account for the impact of rapid and significant country credit deterioration on structured finance transactions. If the adjusted approach is implemented as proposed, the rating of the notes affected by today rating action may be negatively affected. See "Approach to Assessing the Impact of a Rapid Country Credit Deterioration on Structured Finance Transactions", (http://www.moodys.com/research/Approach-to-Assessing-the-Impact-of-a-Rapid-Country-Credit--PBS_SF294880) for further details regarding the implications of the proposed methodology changes on Moody's ratings.

REGULATORY DISCLOSURES

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.

For ratings issued on a program, series or category/class of debt, this announcement provides certain 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 certain 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 certain 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.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

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.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Lydia Ho
Associate 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

Guillaume?Jolivet
Vice President - Senior Analyst
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 39.5m CLO notes of Eurocredit CDO IV B.V.
No Related Data.
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