$37.5M of CDS Notional Affected
New York, October 26, 2010 -- Moody's Investors Service announced today that it has upgraded its rating
on a CDS entered with Swiss Cheetah LLC Asset Protection Transaction 7,
a collateralized debt obligation transaction referencing a static portfolio
of corporate entities (the "Corporate Synthetic Obligation" or "CSO").
Issuer: Swiss Cheetah LLC Asset Protection Transaction 7
....US$37.5M $37,500,000
Swiss Cheetah 7 B Bond, Upgraded to Ba3 (sf); previously on
Sep 18, 2009 Downgraded to Caa2 (sf)
Moody's explained that the rating action taken today is the result of
the credit improvement of the portfolio and shorter time to maturity of
the deal. The 10 year weighted average rating factor (WARF) of
the current portfolio is 919, equivalent to Ba1. This compares
to a 10-year WARF of 1151 equivalent to Ba2 from the last rating
review. Since the last rating action, the bucket of assets
rated Caa and below went from 11% to 7% and there have been
no credit events. The notes have a remaining life of 2.7
years and credit enhancement of 6.4%.
In the process of determining the rating action, Moody's took into
account the results of a number of sensitivity analyses:
(1) Use of Market Implied Ratings - MIRs were used in place of
the corporate fundamental ratings to derive the default probability of
each corporate name in the reference portfolio. The gap between
an MIR and a Moody's corporate fundamental rating is an indicator of the
extent of the divergence of credit view between Moody's and the market.
This run generated a result that was one notch lower than the model result
under the base case.
(2) Defaulted all Caa Referenced Entities - To test the deal sensitivity
to the lowest rated entities of the portfolio, all Caa exposures
were assumed as defaulted. This run generated a result that was
four notches lower than the model result under the base case.
(3) Removal of forward-looking measures - The notching adjustment
on each entity's rating due to watch for downgrade or negative outlook
was removed, resulting in no difference from the base case.
(4) Reduction of time to maturity - Time to maturity was reduced
by a year and by six months, all other things being equal.
These runs generated a result that were one notch better than the base
case.
(5) Stress on largest industry group - All entities in the Banking,
Insurance, Finance and Real Estate were notched down by one,
the largest sector concentration representing 27% of the portfolio
notional. The result of this run was two notches worse than the
base case.
In addition, to the quantitative factors that are explicitly modeled,
qualitative factors are part of 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, and specific documentation features. 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 principal methodology used in rating Swiss Cheetah LLC Asset Protection
Transaction 7 was "Moody's Approach to Rating Corporate Synthetic Obligations"
rating methodology published in September 2009. Other factors that
may have been considered in the process of rating this issuer can also
be found on Moody's website.
Moody's analysis for this transaction is based on CDOROMv2.6.
This model is available on moodys.com under Products and Solutions
-- Analytical models, upon return of a signed free
license agreement.
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.
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. In particular, 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 did not run a separate loss and cash flow analysis other than
the one already done using the CDOROM model. For a description
of the analysis, refer to the methodology and the CDOROM user guide
on Moody's website.
Moody's analysis of corporate CSOs is subject to uncertainties,
the primary sources of which includes complexity, governance and
leverage. Although the CDOROM model capture many of the dynamics
of the Corporate CSO 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 correlations 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 this CSO is also dependent on on-going decisions made by one
or several parties, including the Manager and the Trustee.
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 Corporate CSO liabilities, rating transitions in the reference
pool may have leveraged rating implications for the ratings of the Corporate
CSO liabilities, 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 modeled 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, the CSO rating will
likely be downgraded to an extent depending on the expected severity of
the worsening conditions.
REGULATORY DISCLOSURES
Information sources used to prepare the credit ratings are the following:
parties not involved in the ratings; public information and confidential
and proprietary Moody's Investors Service's 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 adopts all necessary measures so that the information
it uses in assigning a credit rating is of sufficient quality and from
reliable sources; however, Moody's Investors Service does not
and cannot in every instance independently verify, audit 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.
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 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
Rodrigo Araya
Senior Vice President
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Dimitri Kaltsas
Associate Analyst
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.
Moody's downgrades Swiss Cheetah LLC Asset Protection Transaction 7, a CSO
