U.S.$5.1million of debt securities affected
New York, August 05, 2011 -- Moody's Investors Service announced today that it has downgraded its rating
on REPACS Trust Series WATTO I certificates, a collateralized debt
obligation transaction referencing a static portfolio of corporate entities
(the "Corporate Synthetic Obligation" or "CSO").
U.S.$10,000,000 REPACS TRUST SERIES WATTO
I Notes (current outstanding balance $5,100,000),
Downgraded to Caa3 (sf); previously on March 13, 2009 Downgraded
to Caa1 (sf)
RATING RATIONALE
Moody's explained that the rating action taken today is the result of
the deterioration in the credit quality of the reference portfolio.
The 10 year weighted average rating factor of the portfolio worsened from
700 as of the last rating action in March 2009 to 1140 currently,
equivalent to a Ba2. The remaining life of the deal is 1.9
years. The tranche's attachment point is 7.75%
of the portfolio notional and realized losses due to credit events amount
to 3.90%, leaving a 3.85% credit enhancement
against further portfolio losses.
Moody's rating action today factors in a number of sensitivity analyses
and stress scenarios, discussed below. Results are given
in terms of the number of notches' difference versus the base case,
where higher notches correspond to lower expected losses, and vice-versa:
Market Implied Ratings ("MIRs") are modeled in place of the corporate
fundamental ratings to derive the default probability of the reference
entities in the portfolio. The gap between an MIR and a Moody's
corporate fundamental rating is an indicator of the extent of the divergence
in credit view between Moody's and the market. The result of this
run is similar to that of 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 these ratings was "Moody's Approach
to Rating Corporate Collateralized Synthetic Obligations" published in
September 2009. Please see the Credit Policy page on www.moodys.com
for a copy of this methodology.
Moody's analysis for this transaction is based on CDOROM v2.8.
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 does not run a separate loss and cash flow analysis other than
the one already done by the CDOROM model. For a description of
the analysis, refer to the methodology and the CDOROM user's guide
on Moody's website.
Moody's analysis of CSOs is subject to uncertainties, the primary
sources of which include complexity, governance and leverage.
Although the CDOROM model captures 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. 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 CSO liabilities, rating transitions
in the reference pool may have leveraged rating implications for the ratings
of the 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 in the corporate
universe. Should macroeconomics conditions evolve, the CSO
ratings will change to reflect the new economic conditions.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides relevant regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides relevant regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides relevant regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
Information sources used to prepare the rating are the following:
parties involved in the ratings, and public information.
Moody's did not receive or take into account a third party assessment
on the due diligence performed regarding the underlying assets or financial
instruments related to the monitoring of this transaction in the past
six months.
Moody's considers the quality of information available on the rated
entity, obligation or credit satisfactory for the purposes of issuing
a rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a 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 Moody's Rating Symbols and Definitions on the Rating Process
page on www.moodys.com for further information on the meaning
of each rating category and the definition of default and recovery.
Please see ratings tab on the issuer/entity page on www.moodys.com
for the last rating action and the rating history.
The date on which some ratings were first released goes back to a time
before Moody's ratings were fully digitized and accurate data may not
be available. Consequently, Moody's 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 www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
New York
Herve-Pierre Beauchesne
Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service, Inc.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Rodrigo Araya
Senior Vice President
Structured Finance Group
Moody's Investors Service, Inc.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's downgrades certificates issued by REPACS Trust Series WATTO I, a CSO
