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Rating Action:

Moody's downgrades NewLands Financial Limited, a Credit Derivative Product Company

21 Dec 2010

New York, December 21, 2010 -- Moody's Investors Service announced today that it has downgraded the Counterparty Rating of NewLands Financial Limited ("NewLands"):

Counterparty Rating, Downgraded to Aa2 and Placed Under Review for Possible Downgrade; previously on March 28, 2007 Definitive Rating Assigned Aaa

Moody's also has withdrawn the ratings on all of its outstanding debt ("Debt"):

Floating Rate Notes Due 2022, Withdrawn ; previously on August 13, 2009 Downgraded to Aa2

Class A Loan Agreement, Withdrawn ; previously on August 13, 2009 Downgraded to Aa2

Class B Deferrable Loan Agreement, Withdrawn ; previously on March 28, 2007 Definitive Rating Assigned Aa3

Class B1 Deferrable Loan Agreement, Withdrawn ; previously on March 28, 2007 Definitive Rating Assigned Aa3

RATINGS RATIONALE

On December 20, 2010, NewLands redeemed all of its Debt with a face value of $385 million, leaving just over $130 million in capital to support its $5.45 billion notional CDS positions. Moody's has determined that the remaining capital is adequate to support a Aa2 Counterparty Rating. The rating continues to be on review for possible downgrade as Moody's evaluates the possibility that additional capital may be paid out. Moody's has withdrawn the rating on NewLands' Debt because they no longer exist.

NewLands is a Credit Derivative Product Company ("CDPC"), which is a type of a structured finance operating company whose sole business consists of selling credit protection on corporate entities through credit default swaps ("CDS"). Following its launch on March 28, 2007, NewLands was only able to enter into a limited number of so-called "super senior" CDS contracts before the onset of the credit crisis effectively prevented it from writing more business.

NewLands redeemed its debt in accordance with its documentation. Provisions in the Class A Loan, Class B Deferrable Loan, and Class B1 Deferrable Loan agreements gave NewLands the right to prepay its debt in full if loan investor consents for certain actions were not given, subject to certain tests, all of which conditions were met. Similarly, the prepayment of loans made the prepayment of the Senior Subordinated Notes possible, despite no call provisions.

Moody's evaluated the capital adequacy, assuming the existing portfolio continues to maturity and existing capital and premia received will only be used to pay out on claims and expenses. Moody's used CDOROMv2.6 in conjunction with CDOEdge to assess losses on the CDS portfolio, to account for company cash flows, and to estimate expected loss. The estimated expected loss was determined to be consistent with a Aa2 rating.

Moody's has also left NewLands' Counterparty Rating under review for possible downgrade. In addition, to the quantitative factors that are explicitly modeled, qualitative factors formed a part of Moody's considerations. These factors, which include NewLands structural protections, recent performance in the current market environment, the legal environment, concerns about NewLands intentions, particularly whether additional capital may be paid out, and other specific documentation features, formed the basis for the review for possible downgrade.

The principal methodologies used in this rating were "Credit Derivative Product Companies" published in March 2006, and "Moody's Updates its Key Assumptions for Rating Corporate Synthetic CDOs" published in January 2009.

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.

Moody's analysis for this transaction is based on CDOROMv2.6 and CDOEdge v.3.2.1.0 (27-Oct-2009:3081). CDOROM is available on moodys.com under Products and Solutions -- Analytical models, upon return of a signed free license agreement.

Due to the impact of revised and updated key assumptions referenced in "Moody's Approach to Rating Corporate Synthetic Obligations", key model inputs used by Moody's in its analysis may be different from the manager/arranger's reported numbers. For example, rating assumptions for all publicly rated corporate credits in the underlying portfolio have been adjusted for "Review for Possible Downgrade", "Review for Possible Upgrade", or "Negative Outlook".

Moody's analysis of NewLands is subject to uncertainties, the primary sources of which includes complexity, governance and leverage. Although the CDOROM model captures many of the dynamics of NewLands' structure, it remains a simplification of the complex reality. Of greatest concern are (a) variations over time in default rates for instruments with a given rating, (b) variations in recovery rates for instruments with particular seniority/security characteristics and (c) uncertainty about the default and recovery correlation characteristics of the reference pool. Similarly on the legal/structural side, the legal analysis although typically based in part on opinions (and sometimes interpretations) of legal experts at the time of issuance, is still subject to potential changes in law, case law and the interpretations of courts and (in some cases) regulatory authorities. The performance of NewLands is also dependent on on-going decisions made by one or several parties. Although the impact of these decisions is mitigated by structural constraints, anticipating the quality of these decisions necessarily introduces some level of uncertainty in our assumptions. Given the tranched nature of CDSs that is in NewLands' portfolio, rating transitions in the reference pool may have leveraged rating implications for the ratings of the CDSs, thus leading to a high degree of volatility. All else being equal, the volatility is likely to be higher for more junior or thinner liabilities.

The base case scenario modelled fits into the central macroeconomic scenario predicted by Moody's of a sluggish recovery scenario of the corporate universe. Should macroeconomic conditions evolve towards a more severe scenario such as a double dip recession, NewLands' rating will likely be downgraded to an extent depending on the expected severity of the worsening conditions.

Moody's will continue monitoring this rating. Any change in the rating will be publicly disseminated by Moody's through appropriate media.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, parties not involved in the ratings, and public 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 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.

New York
Algis Remeza
Senior Vice President
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Rodrigo Araya
Senior Vice President
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's downgrades NewLands Financial Limited, a Credit Derivative Product Company
No Related Data.
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