Approximately EUR 570.1 million of securities affected.
London, 21 November 2013 -- Moody's Investors Service announced today that it has placed on review
for downgrade 23 tranches in 13 Corporate Synthetic Collateralized Debt
Obligations (CSOs), totalling approximately EUR 570 million of outstanding
rated balance.
Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF348162
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and identifies each affected issuer.
RATINGS RATIONALE
The actions are the result of the updates to the methodology that Moody's
uses to rate and monitor CSOs. These updates include removing the
30% macro default probability stress for corporate credits,
lowering the average recovery rate assumptions for most types of debt,
modifying the modeling framework for corporate asset correlations,
introducing an adverse selection adjustment on default probabilities where
relevant, and simplifying the cheapest to-deliver haircut
that applies to recoveries. Please see Moody's press announcement
on the CSO methodology update, https://www.moodys.com/research/Moodys-Updates-its-Methodology-for-Corporate-Synthetic-Collateralized-Debt-Obligations--PR_287161.
Moody's has assessed all of its outstanding ratings on CSO transactions
and has identified that the transactions above will be affected by the
changes in the updated CSO methodology. Moody's will complete the
review of all affected transactions within the next six months.
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".
No additional sensitivities or stress scenarios were run on the affected
transactions because the rating actions are primarily driven by the preliminary
assessment of the impact of the updated methodology.
Moody's notes that these transaction are subject to a high level of uncertainties,
the primary sources of which are (1) large and unexpected deviations in
the credit environment and the macroeconomy, (2) divergence in legal
interpretation of documentation by different transactional parties due
to embedded ambiguities, (3) potential changes or new rulings in
law, case law by the courts and/or regulatory authorities leading
to different loss outcomes than those inferred from the initial reading
of the legal documentation, (4) lack of reporting or misreporting
of changes to the transaction and (5) if applicable, the manager's
investment strategy and course of action taken by a trustee in an event
of default. These uncertainties could negatively impact the ratings
of the notes.
For CSOs, the credit default swaps' performance may be impacted
either positively or negatively by 1) variations over time in default
rates for instruments with a given rating, 2) variations in recovery
rates for instruments with particular seniority/security characteristics,
and 3) uncertainty about the default and recovery correlations characteristics
of the reference pool. 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 rating volatility. All else being equal, the volatility
is likely to be higher for more junior or thinner liabilities.
The principal methodology used in these ratings was "Moody's Approach
to Rating Corporate Synthetic Collateralized Debt Obligations " published
in November 2013. Please see the Credit Policy page on www.moodys.com
for a copy of this methodology.
In rating these transactions, Moody's used Moody's CDOROM
® to model the cash flows and determine the loss for each tranche.
The Moody's CDOROM ® is a Monte Carlo simulation which takes the Moody's
default probabilities as input. Each corporate reference entity
is modelled individually with a standard multi-factor model incorporating
intra- and inter-industry correlation. The correlation
structure is based on a Gaussian copula. In each Monte Carlo scenario,
defaults are simulated. Losses on the portfolio are then derived,
and allocated to the notes in reverse order of priority to derive the
loss on the notes issued by the Issuer. By repeating this process
and averaging over the number of simulations, an estimate of the
expected loss borne by the notes is derived.
In addition to the quantitative factors that are explicitly modelled,
qualitative factors are part of the 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.
REGULATORY DISCLOSURES
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 these transactions in the past
six months.
For ratings issued on a program, series or category/class of debt,
this announcement provides certain 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 certain 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 certain 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.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this rating action, and
whose ratings may change as a result of this rating action, the
associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
The below contact information is provided for information purposes only.
Please see the ratings tab of the issuer page at www.moodys.com,
for each of the ratings covered, Moody's disclosures on the
lead analyst and the Moody's legal entity that has issued the ratings.
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.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Mariona Serrat
Associate Analyst
Structured Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Neelam S Desai
Senior Vice President/Manager
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Gabriele Gramazio
Associate Analyst
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's places 13 CSO transactions under review for downgrade following revision of methodology
