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01 Oct 2010
Approx. US$840 million of GICs affected
New York, October 01, 2010 -- Moody's Investors Service announced today that it has downgraded the ratings
of the guaranteed investment contracts (GICs) issued or to be issued by
Pallas Capital Corporation.
US $5,000,000,000 GIC's Notes, Downgraded
to Baa3; previously on September 29, 2010 Downgraded to A3
US $5,000,000,000 GIC's Notes, Downgraded
to P-3; previously on September 29, 2010 Confirmed at
Pallas Capital Corporation ("Pallas") is a special purpose corporation
organized under the laws of the State of Delaware for the sole purpose
of issuing guaranteed investment contracts ("GICs") to eligible state
and local government authorities. The proceeds of the GICs are
invested in eligible reverse repurchase agreements ("repos") and eligible
liquid investments. The reverse repos may be collateralized by
a pool of structured finance and corporate assets, and the margin
calls on the reverse repos collateral are guaranteed by the reverse repo
counterparty. On September 29, 2010, Moody's downgraded
the long-term ratings of the GICs issued or to be issued by Pallas
to A3 from Aaa following DEPFA's decision not to adopt Moody's
latest assumptions regarding volatility and liquidity haircuts of corporate
and structured finance assets that can be held as reverse repo collateral.
Today's rating action is primarily the result of Moody's downgrading
the long-term debt rating of DEPFA Bank plc to Baa3 from A3 and
of the fact that the ratings of the GICs are a direct pass-through
rating of the reverse repo counterparty, DEPFA Bank plc.
Similarly, as a result of Moody's downgrade of the short-term
ratings of DEPFA Bank plc by two notches to Prime-3 from Prime-1,
the short-term ratings of GICs were also downgraded to Prime-3
The principal methodologies used in rating Pallas Capital Corporation
were "A Framework for Understanding Structured Finance Operating Companies"
published in April 2005, and "Moody's Modifies its Modeling Assumptions
for Market-Value Collateralized Loan Obligations" published in
July 2009. Other methodologies and factors that may have been considered
in the process of rating this issuer can also be found on Moody's website.
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.
In deriving the advance rates for Pallas, certain credit is given
to the counterparty credit support because the margin calls on the reverse
repo collateral are guaranteed by the reverse repo counterparty.
This is done by assuming that the expected loss (EL) on the GICs is equal
to the default probability (DP) of the reverse repo counterparty times
the loss given default (LGD) of the reverse repo collateral. The
advance rates measure the sufficiency of market value of the collateral
such that the sales proceeds of the collateral in case of counterparty
defaulting will give rise to the expected loss that would be consistent
with the ratings assigned to the GICs.
Information sources used to prepare the credit rating are the following:
parties 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.
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used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service
Yvonne F. Fu
MD-US and Amer Structured Cred
Structured Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's downgrades Pallas, a MV SFOC, following the downgrade of DEPFA
250 Greenwich Street
New York, NY 10007
No Related Data.
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