New York, September 21, 2009 -- Moody's Investors Service announced today that it has downgraded the ratings
of the following notes issued by Babson CLO Ltd. 2004-I:
U.S.$45,000,000 Class A-1 Senior
Revolving Notes, Due 2016 Notes (current balance of $43,981,159),
Downgraded to A1; previously on June 3, 2004 Assigned Aaa
U.S.$198,000,000 Class A-2A Senior
Notes, Due 2016 Notes (current balance of $193,517,099),
Downgraded to A1; previously on June 3, 2004 Assigned Aaa
U.S.$99,900,000 Class A-2B Senior
Notes, Due 2016 Notes (current balance of $97,638,173),
Downgraded to A1; previously on June 3, 2004 Assigned Aaa
U.S.$100,000 Class A-2Bv Senior Notes,
Due 2016 Notes (current balance of $97,736), Downgraded
to A1; previously on June 3, 2004 Assigned Aaa
U.S.$17,000,000 Class B Senior Notes,
Due 2016 Notes, Downgraded to Baa1; previously on March 4,
2009 Aa2 Placed Under Review for Possible Downgrade
U.S.$23,000,000 Class C-1 Deferrable
Mezzanine Notes, Due 2016 Notes, Downgraded to Ba2; previously
on March 18, 2009 Downgraded to Ba1 and Remained On Review for Possible
Downgrade
U.S.$4,000,000 Class C-2 Deferrable
Mezzanine Notes, Due 2016 Notes, Downgraded to Ba2; previously
on March 18, 2009 Downgraded to Ba1 and Remained On Review for Possible
Downgrade
U.S.$25,000,000 Class D Deferrable Mezzanine
Notes, Due 2016 Notes, Downgraded to Caa3; previously
on March 18, 2009 Downgraded to B1 and Remained On Review for Possible
Downgrade
U.S.$20,000,000 Class Z Combination Securities
Notes (current balance of $10,915,171.54),
Downgraded to B2; previously on June 3, 2004 Assigned Baa2
According to Moody's, the rating actions taken on the notes are
a result of credit deterioration of the underlying portfolio. Such
credit deterioration is observed through a decline in the average credit
rating (as measured by the weighted average rating factor), an increase
in the dollar amount of defaulted securities, an increase in the
proportion of securities from issuers rated Caa1 and below, and
failure of Mezzanine Overcollateralization Test. In particular,
the weighted average rating factor has increased over the last year and
is currently 3268 versus a test level of 2923 as of the last trustee report,
dated August 5, 2009. Based on the same report, defaulted
securities currently held in the portfolio total about $28 million,
accounting for roughly 6% of the collateral balance, and
securities rated Caa1 or lower make up approximately 18% of the
underlying portfolio. The Mezzanine Overcollateralization Test
was reported at 100.14%versus a test level of 102%.
Today's rating actions also reflect Moody's revised assumptions
with respect to default probability and the calculation of the Diversity
Score. These revised assumptions are described in the publication
"Moody's Approach to Rating Collateralized Loan Obligations,"
dated August 12, 2009. Moody's analysis also reflects the
expectation that recoveries for second lien loans will be below their
historical averages, consistent with Moody's research (see Moody's
Special Comment titled "Strong Loan Issuance in Recent Years Signals Low
Recovery Prospects for Loans and Bonds of Defaulted U.S.
Corporate Issuers," dated June 2008). Other assumptions used
in Moody's CLO monitoring are described in the publication "CLO
Ratings Surveillance Brief - Second Quarter 2009,"
dated July 17, 2009. Due to the impact of all aforementioned
stresses, key model inputs used by Moody's in its analysis,
such as par, weighted average rating factor, diversity score,
and weighted average recovery rate, may be different from the trustee's
reported numbers.
Babson CLO Ltd. 2004-I, issued in June 3, 2004
is a collateralized loan obligation backed primarily by a portfolio of
senior secured loans.
The principal methodologies used in rating and monitoring the transaction
are described in the following publications, which can be found
at www.moodys.com in the Research & Ratings directory,
in the Rating Methodologies subdirectory:
Moody's Approach to Rating Collateralized Loan Obligations (August 12,
2009);
Using the Structured Note Methodology to Rate CDO Combo-Notes (February
26, 2004).
Other methodologies and factors that may have been considered in the process
of rating this issue can also be found in the Research & Ratings directory.
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, specific documentation features, the collateral
manager's track record, and the potential for selection bias in
the portfolio. 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.
New York
Jian Hu
Managing Director
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Caroline Chan
Senior Associate
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's downgrades the ratings of $415MM of notes issued by Babson CLO Ltd. 2004-I