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Related Issuers
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Rating Action:

Moody's places on review for downgrade ratings on 38 combination securities backed by CLO secured debt and equity tranches

07 Oct 2016

New York, October 07, 2016 -- Moody's Investors Service announced today that it has placed on review for downgrade the ratings on 38 combination securities backed by Collateralized Loan Obligation (CLO) secured debt and equity tranches.

Please click on this link: http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF440648 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 today are the result of updates to the methodology that the agency uses to rate and monitor securities backed by both CLO secured debt and equity tranches. The update has added a CLO refinancing scenario to Moody's analysis to account for the risks associated with potential refinancing of the CLO secured debt tranches, when the deal documentation permits refinancing. Adding the refinancing scenario analysis will capture the combined effects of loss of future coupon payments from the refinanced CLO secured debt tranches, as well as the impact on the instrument's weighted average life or duration. Please see Moody's announcement on the CLO methodology update, https://www.moodys.com/research/Moodys-publishes-its-updated-methodology-for-rating-securities-backed-by--PR_355239

Moody's has assessed all of its outstanding ratings on securities backed by CLO secured debt and equity tranches to determine whether they may be affected by the updates to the methodology. These include combination securities backed by both CLO secured debt and equity tranches that have a rated balance that differs from the entire contractual promise of these securities; Moody's ratings on these securities continue to be based upon the rated balance, and not the contractual promise. The ratings placed on review in today's action are those for combination securities are at risk for potential refinancing. Moody's expects that for most of these securities, the methodology update will have a negative rating impact of one to four notches.

Moody's expects to complete the review of these affected transactions within the next six months.

The ratings of the following types of securities are not affected by the updates to the methodology and therefore have not been placed on review: (1) principal protected securities, (2) securities rated on a pass-through basis, (3) combination securities issued before 2008, (4) securities whose underlying transactions either prohibit refinancing or are unlikely to meet the required conditions for refinancing, (5) securities backed solely by highly-rated underlying secured debt components, (6) securities that are over-collateralized by the sum of the principal balances of their underlying secured debt components, and (7) securities whose underlying transactions are close to exiting their reinvestment periods and for which we assign a lower refinancing probability.

The principal methodology used in these ratings was "Moody's Global Approach to Rating Collateralized Loan Obligations," published in October 2016. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Today's rating actions primarily reflect the preliminary assessment of the impact of the updated methodology and are not based on the modeling of the affected transactions or analysis of sensitivities or stress scenarios.

The ratings on the affected securities, which combine cash flows from one or more of the CLO's debt tranches and the equity tranche, are subject to a higher degree of volatility than other types of CLO notes. Moody's models haircuts to the cash flows from the equity tranche based on the target rating of the securities. Actual equity distributions that differ significantly from Moody's assumptions can lead to a faster (or slower) speed of reduction in the securities' balance, thereby resulting in better (or worse) ratings performance than previously expected.

The affected securities are also sensitive to the performance of the underlying CLO transactions, and are thus subject to a high level of macroeconomic uncertainty, as evidenced by 1) uncertainties of credit conditions in the general economy and 2) the large concentration of upcoming speculative-grade debt maturities which may create challenges for issuers to refinance. The securities' performance may also be impacted by 1) the CLO manager's investment strategy and behavior and 2) divergence in legal interpretation of CLO documentation by different transactional parties due to embedded ambiguities.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions of the disclosure form.

Moody's did not use any models, or loss or cash flow analysis, in its analysis.

Moody's did not use any stress scenario simulations in its analysis.

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 credit rating action on the support provider and in relation to each particular credit 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 credit rating action, and whose ratings may change as a result of this credit 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.

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.

Shan Lai
Asst Vice President - Analyst
Structured Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Jian Hu
MD - Structured Finance
Structured Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
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