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
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SUBSCRIBERS: 44 20 7772 5454
Moody's Investors Service Ltd.
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Canary Wharf
London E14 5FA
United Kingdom
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Moody's downgrades EUR 74.55M SME CLO Notes of S-core 2008-1
