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Related Issuers
Rating Action:

Moody's downgrades EUR 74.55M SME CLO Notes of S-core 2008-1

30 Mar 2011

London, 30 March 2011 -- Moody's Investors Service announced today that it has downgraded the ratings of six classes of notes issued by S-core 2008. The notes affected by today's rating action are as follows:

EUR32.45M A2 Notes, Downgraded to A2 (sf); previously on Sep 4, 2009 Downgraded to A1 (sf)

EUR7.95M B Notes, Downgraded to Baa3 (sf); previously on Sep 4, 2009 Downgraded to Baa2 (sf)

EUR6.1M C Notes, Downgraded to Ba2 (sf); previously on Sep 4, 2009 Downgraded to Ba1 (sf)

EUR7.9M D Notes, Downgraded to B3 (sf); previously on Sep 4, 2009 Downgraded to Ba3 (sf)

EUR13.6M E Notes, Downgraded to Caa3 (sf); previously on Sep 4, 2009 Downgraded to Caa1 (sf)

EUR6.55M F Notes, Downgraded to Ca (sf); previously on Sep 4, 2009 Downgraded to Caa3 (sf)

RATINGS RATIONALE

S-core 2008-1 is a German SME CLO referencing a static portfolio of 'schuldscheine' loans. The outstanding portfolio totals EUR 308.4 million of portfolio assets, representing exposure to 168 loans scheduled to mature either in 2012 or 2014 with bullet repayments. In November 2010, EUR 116.3 million of loans amortised. The resulting principal proceeds were used to repay the Class A1 notes, which have been fully redeemed by EUR 137.2 million from principal cash flows and the remainder by excess spread proceeds. The data is taken from the investor report dated 30 December 2010.

According to Moody's the rating actions are mainly driven by:

1) a default rate realised in the underlying pool slightly higher than expected at last rating action (September 2009)

2) minimal amount of recoveries observed on defaults to date for either S-core 2008 or the pool of the preceding series, S-core 2007, leading to uncertainty on the level of recoveries achievable.

3) a marginally worse average portfolio rating compared to last rating action

4) migration from a bespoke model used previously to Moody's standard cash flow model and a loss distribution for the underlying portfolio produced by the CDOROM Model (simulation).

S-core 2008 has experienced EUR 12 million of defaults since last rating action (September 2009). Reflecting the higher defaults in the pool and a corresponding reduction in available excess spread in the transaction, the principal deficiency ledger (PDL) has increased to EUR 6.4 million from EUR 3.2 million since the last action on 27 October 2009. At the last payment date on January 2011, EUR0.38 million of spread proceeds were available to reduce the PDL. Since closing, only EUR0.91 million have been recovered from a EUR1.2 million single obligor exposure out of EUR19.2 million of cumulative defaults. Ten defaulted loans are currently held in the structure pending a complete workout and those are expected to generate additional principal proceeds . Once and if available, further 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 rating to scheduled maturity (10 December 2014) consistent with a Ba3 rating together with a recovery assumption of 30% upon default of the currently performing assets.

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 .

Moody's determined the default probability associated with each asset included in the underlying pool based on internal credit assessments assigned to the loan obligors by the originator Deutsche Bank. These internal assessments have been converted to Moody's rating scale according to a credit mapping .

Moody's also considered the sensitivity of the expected loss for each CDO tranches to lower recovery rate assumptions. Reducing recovery rates for both existing and modelled defaulted assets to 15% from 30% of par impacts the model results of the rated tranches by 1 notch for the Class A1, two to three notches for the lower rated notes. Moody's also considered the model impact from future amortization of the pool in 2012 and found the model output on classes A to E consistent or better than the current base case model output. In the case of Classes A and B, results were consistent or better than the base case outputs when assuming portfolio migration of one notch on the underlying Deutsche bank ratings.

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 6 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.

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 source(s) used to prepare the credit rating is/are the following: parties involved in the ratings; 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
Analyst
Structured Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Paris
Florence Tadjeddine
VP - Senior Credit Officer
Structured Finance Group
Moody's France SAS
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

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 74.55M SME CLO Notes of S-core 2008-1
No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

CREDIT RATINGS ISSUED BY MOODY'S INVESTORS SERVICE, INC. AND ITS RATINGS AFFILIATES (“MIS”) ARE MOODY’S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MOODY’S PUBLICATIONS MAY INCLUDE MOODY’S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE MOODY’S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY’S RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND MOODY’S OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY’S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. CREDIT RATINGS AND MOODY’S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND MOODY’S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. NEITHER CREDIT RATINGS NOR MOODY’S PUBLICATIONS COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT RATINGS AND PUBLISHES MOODY’S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.

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