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Rating Action:

Moody's takes positive rating actions on 93 tranches in 38 amortising European CLOs due to significant loan prepayments

14 Nov 2013

66 tranches in 29 CLOs upgraded and 79 tranches in 38 CLOs remain on watch for upgrade

London, 14 November 2013 -- Moody's Investors Service announced today that it has upgraded the ratings on 66 tranches in 29 European collateralised loan obligations (CLOs), totalling approximately EUR 1.9 billion of outstanding rated balance. The magnitude of these upgrades range generally between one and three notches. The ratings of all tranches upgraded, except for those already upgraded to Aaa (sf), remain on review for upgrade. Moody's also placed on review for upgrade the ratings of an additional 27 tranches in 20 CLOs, totalling approximately EUR 852.1 million of outstanding rated balance.

Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF347864 for the List of Affected Credit Ratings. This list is an integral part of this Press Release and identifies each affected issuer.

RATINGS RATIONALE

Moody's explained that today's rating actions are primarily a result of the substantial deleveraging of senior notes and increases in the overcollateralisation (OC) levels in the affected CLOs, which improved the credit enhancement levels of outstanding tranches in these transactions. The deleveraging and OC improvements primarily resulted from high prepayment rates of leveraged loans in CLO portfolios. In particular, Moody's observed a significantly high rate of prepayment during the summer of 2013. As described in "Moody's Global Approach to Rating Collateralized Loan Obligations" published in May 2013, Moody's may adjust its analysis when the evolution of market and economic conditions warrants it.

Moody's noted that all of the affected CLOs today have exited their reinvestment periods, and either cannot or have only limited capacity to reinvest loan repayment proceeds. As a result, these transactions have applied and are expected to apply most repayment proceeds to amortise their liabilities. All else held equal, such deleveraging is generally a positive credit driver for the affected CLOs' rated liabilities.

To identify and analyse the affected transactions, Moody's examined primarily the extent of OC increases for each CLO tranche in 40 transactions since the last rating actions. In addition, the rating agency considered the following key CLO portfolio- and tranche-level parameters:

• Amount of cash in the principal collections account

• Absolute OC level for each tranche in relation to its current rating

• Portfolio WARF level and migration

• Exposure to assets that mature after the legal maturity of the CLO notes

• Other idiosyncratic transaction features if applicable

Moody's filtered European CLOs it rates for transactions that had experienced significant deleveraging in recent periods. It assessed 40 CLOs and examined the parameters above, in particular the change in OC and credit enhancement level for each rated tranche, to determine 1) whether to place on review for upgrade the rating on each tranche, 2) whether to upgrade the rating on each tranche and 3) the magnitude of upgrade, if applicable.

All of the tranches upgraded, except for those already upgraded to Aaa (sf), remain on review for upgrade, pending comprehensive analysis of each affected CLO, including full cash flow modelling. Moody's endeavours to complete its analyses of all affected transactions within 90 days. While in some cases Moody's did not place the ratings on all tranches from the same transaction on review for upgrade, the rating agency will review the entire capital structure when it conducts a full analysis of each transaction and take rating actions when warranted.

All transactions affected today are European CLOs that are collateralised primarily by senior secured loans.

The principal methodology used in these ratings was "Moody's Global Approach to Rating Collateralized Loan Obligations" published in May 2013. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Moody's did not rely on explicit cash modelling or perform any sensitivity analyses, because today's actions result primarily from consideration of rapid deleveraging in the transactions due to loan prepayments, and the affected transactions will be subject to detailed analysis in order to conclude their review.

The affected transactions, like other CLOs, are 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 notes' performance may also be impacted by 1) the managers' investment strategy and behaviour and 2) divergence in legal interpretation of CDO documentation by different transactional parties due to embedded ambiguities.

Further information on Moody's analysis of these transactions are available on www.moodys.com

REGULATORY DISCLOSURES

Moody's did not receive or take into account any 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.

Mizuho Tanaka
Asst Vice President - 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

Hemal Shah
Asst Vice President - 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 takes positive rating actions on 93 tranches in 38 amortising European CLOs due to significant loan prepayments
No Related Data.
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