USD 63 million of debt securities affected
New York, December 16, 2011 -- Moody's Investors Service announced today that it has placed under review
for possible downgrade the ratings of the following notes issued by Bristol
Bay Funding Ltd.:
U.S. $24,000,000 Class A-2 Floating
Rate Senior Notes Due 2016, A1 (sf) Placed Under Review for Possible
Downgrade; previously on June 22, 2011 A1 (sf) Placed Under
Review for Possible Upgrade;
U.S. $40,000,000 Class B Floating Rate
Deferrable Senior Subordinate Notes Due 2016 (currently outstanding balance
of $39,427,918), Ba2 (sf) Placed Under Review
for Possible Downgrade; previously on June 22, 2011 Ba2 (sf)
Placed Under Review for Possible Upgrade.
In addition, Moody's confirmed the rating of the following
notes:
U.S. $39,000,000 Class A-1 Floating
Rate Senior Notes Due 2016 (currently outstanding balance of $11,126,178),
Confirmed Aa3 (sf); previously on June 22, 2011 Aa3 (sf) Placed
Under Review for Possible Upgrade.
RATINGS RATIONALE
According to Moody's, today's rating actions result primarily
from corrections to the modeling of assumptions as to the treatment of
long-dated assets, amortization of the reinvested assets,
and tracking of the GIC account that were used in Moody's previous analyses
of the transaction. Due to errors in the previous modeling of these
assumptions, the ratings assigned in the previous rating action
may have been higher than warranted. These errors have been corrected,
and today's rating actions reflect the appropriate assumptions.
Today's rating actions also reflect consideration of applying Moody's
revised CLO assumptions described in "Moody's Approach to Rating Collateralized
Loan Obligations" published in June 2011. The primary changes to
the modeling assumptions include (1) a removal of the temporary 30%
default probability macro stress implemented in February 2009 as well
as (2) increased BET liability stress factors and increased recovery rate
assumptions.
Moody's says that the decision to place the ratings under review
for possible downgrade is based in part on uncertainty as to the accuracy
of the Swap Notional Amount as reported in the October 2011 trustee report.
Moody's has been advised that this figure may be revised in the
near future.
The actions also considered credit improvement of the underlying portfolio
and delevering of the senior notes since the rating action in June 2009.
Based on the September 2011 trustee report, the weighted average
rating factor is currently 2539 compared to 2817 in May 2009.
Moody's notes that the Class A-1 Notes have been paid down
by approximately 69% or $24 million since the rating action
in June 2009. As a result of the delevering, the overcollateralization
ratios have increased. Based on the latest trustee report dated
October 19, 2011, the Class A and Class B overcollateralization
ratios are reported at 285.2% and 134.4%,
respectively, versus May 2009 levels of 203.6% and
121.7%, respectively.
Additionally, Moody's noted that the underlying portfolio includes
a number of investments in securities that mature after the maturity date
of the notes, and that such exposure has grown as a result of the
deal's decision to participate in amend-and-extend activities.
Based on Moody's calculations, as of the October 2011 trustee report,
securities that mature after the maturity date of the notes make up approximately
17% of the underlying portfolio versus 1% in May 2009.
The high percentage of these securities potentially exposes the notes
to market risk in the event of liquidation at the time of the notes' maturity.
Furthermore, the rating actions taken on the Class A-1 Notes
also reflects the additional risk posed to the noteholders due to the
insurance financial strength rating of General Electric Capital Corporation,
which acts as Guarantor under the Investment Agreement in the transaction.
In its analysis, Moody's added the Aa2 default risk associated with
General Electric Capital Corporation to the expected loss of each class
of rated notes, resulting in an Aa3 rating for Class A-1
in expected loss terms. The impact on the Class A-1 Notes
was more pronounced due to their higher rating relative to the ratings
of other classes of rated notes.
Due to the impact of revised and updated key assumptions referenced in
"Moody's Approach to Rating Collateralized Loan Obligations" published
in June 2011, 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. In its base case, Moody's analyzed
the underlying reference pool to have a swap notional of $410 million,
defaulted par of $22 million, a weighted average default
probability of 15.73% (implying a WARF of 2860), a
weighted average recovery rate upon default of 47.69%,
and a diversity score of 50. The default and recovery properties
of the reference pool are incorporated in cash flow model analysis where
they are subject to stresses as a function of the target rating of each
CLO liability being reviewed. The default probability is derived
from the credit quality of the reference pool and Moody's expectation
of the remaining life of the reference pool. The average recovery
rate to be realized on future defaults is based primarily on the seniority
of the assets in the reference pool. In each case, historical
and market performance trends and collateral manager latitude for trading
the reference are also factors.
Bristol Bay Funding Ltd., issued in March 2004, is
a synthetic collateralized loan obligation referencing primarily by a
portfolio of senior secured loans.
The principal methodology used in this rating was "Moody's Approach to
Rating Collateralized Loan Obligations" published in June 2011.
Please see the Credit Policy page on www.moodys.com for
a copy of this methodology.
Moody's modeled the transaction using the Binomial Expansion Technique,
as described in Section 2.3.2.1 of the "Moody's Approach
to Rating Collateralized Loan Obligations" rating methodology published
in June 2011.
Moody's notes that this transaction is 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 speculative-grade
debt maturing between 2013 and 2015 which may create challenges for issuers
to refinance. CDO notes' performance may also be impacted
by 1) the manager's investment strategy and behavior and 2) divergence
in legal interpretation of CDO documentation by different transactional
parties due to embedded ambiguities.
Sources of additional performance uncertainties are described below:
1) Amortization of the reference pool: The main source of uncertainty
in this transaction is the pace of amortization of the reference pool
from scheduled and unscheduled payments. Delevering of the notes
may accelerate due to high prepayment levels in the loan market and/or
collateral sales by the manager, which may have significant impact
on the notes' ratings.
2) Recovery of defaulted assets: Market value fluctuations in defaulted
assets reported by the trustee and those assumed to be defaulted by Moody's
may create volatility in the deal's overcollateralization levels.
Further, the timing of recoveries and the manager's decision
to work out versus sell defaulted assets create additional uncertainties.
Moody's analyzed defaulted recoveries assuming the lower of the
market price and the recovery rate in order to account for potential volatility
in market prices.
3) Long-dated assets: The presence of assets that mature
beyond the CLO's legal maturity date exposes the deal to liquidation
risk on those assets. Moody's assumes an asset's terminal
value upon liquidation at maturity to be equal to the lower of an assumed
liquidation value (depending on the extent to which the asset's
maturity lags that of the liabilities) and the asset's current market
value.
Further information on Moody's analysis of this transaction is available
on www.moodys.com.
REGULATORY DISCLOSURES
Although this credit rating has been issued in a non-EU country
which has not been recognized as endorsable at this date, this credit
rating is deemed "EU qualified by extension" and may still
be used by financial institutions for regulatory purposes until 31 January
2012. ESMA may extend the use of credit ratings for regulatory
purposes in the European Community for three additional months,
until 30 April 2012, if ESMA decides that exceptional circumstances
arise that may imply potential market disruption or financial instability.
Further information on the EU endorsement status and on the Moody's
office that has issued a particular Credit Rating is available on www.moodys.com.
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, public information, and confidential
and proprietary Moody's Investors Service 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.
Alena Chen
Associate 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
Ramon O. Torres
Senior Vice President
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
Moody's places under review for possible downgrade the ratings of CLO notes issued by Bristol Bay Funding Ltd.
