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19 May 2009
New York, May 19, 2009 -- Moody's Investors Service announced today that it has downgraded the following
notes issued by Largo (Wayfarer CDO 2007-1), Ltd.:
U.S. $143,700,000 Class A-2 Contingent
Funding Notes, due June 2014, Downgraded to A2; previously
on April 13, 2009 Aaa Placed Under Review for Possible Downgrade;
U.S. $20,000,000 Class A-3 Floating
Rate Notes, due June 2014, Downgraded to B3; previously
on April 13, 2009 Downgraded to Aa3 and Placed Under Review for
U.S. $16,000,000 Class B Floating Rate
Notes, due June 2014, Downgraded to Caa3; previously
on April 13, 2009 Downgraded to A1 and Placed Under Review for Possible
U.S. $16,000,000 Class C Floating Rate
Notes, due June 2014, Downgraded to Ca; previously on
April 13, 2009 A2 Placed Under Review for Possible Downgrade;
U.S. $14,000,000 Class D Floating Rate
Deferrable Interest Notes, due June 2014, Downgraded to C;
previously on April 13, 2009 Baa2 Placed Under Review for Possible
U.S. $14,000,000 Class E Floating Rate
Deferrable Interest Notes, due June 2014, Downgraded to C;
previously on April 13, 2009 Ba2 Placed Under Review for Possible
According to Moody's, the rating actions taken on the notes are
a result of credit deterioration of the underlying portfolio. The
actions also reflect Moody's revised assumptions with respect to default
probability, the treatment of ratings on "Review for Possible Downgrade"
or with a "Negative Outlook," and default and asset correlations.
The revised assumptions that have been applied to all corporate credits
in the underlying portfolio are described in the press release dated January
15, 2009, titled "Moody's updates key assumptions for rating
corporate synthetic CDOs."
Credit deterioration of the collateral pool is observed in, among
others, a decline in the average credit rating (as measured through
the weighted average rating factor), an increase in the dollar amount
of defaulted securities, and an increase in the proportion of securities
from issuers rated Caa1 and below. The weighted average rating
factor has significantly increased over the last few months and it is
currently at 2992 as of the last trustee report, dated April 7,
2009. Based on the same trustee report, approximately 27%
of the transaction's assets are rated Caa1 or below. To date,
the trustee has reported $31,500,000 in defaulted notional
In addition, as a result of the failure of Class A/B/C Par Value
Test, excess interest will be diverted towards paying down the Class
A-1 Notes. The failure of this test resulted in the deferral
of interest payments on the Class D Notes and the Class E Notes on the
previous payment date of March 23, 2009.
Moody's also notes the additional risk posed to the noteholders by the
increased risk of the collateral and the CDS counterparty. The
Class A-3, Class B, Class C, Class D, and
Class E notes are collateralized by floating rate global MTNs issued by
General Electric Capital Corporation ("GECC"). On March 23,
2009, Moody's downgraded the senior unsecured rating of GECC from
Aaa to Aa2. The credit default swap counterparty in this transaction
is Goldman Sachs Mitsui Marine Derivatives Products, L.P.
("GSMMDP"). On April 7, 2009, Moody's
downgraded the counterparty rating of GSMMDP from Aaa to Aa1. In
its analysis, Moody's took into account the Aa2 default risk associated
with GECC and the Aa1 expected loss associated with GSMMDP.
In its analysis, Moody's has assumed a fixed 40% recovery
rate consistent with the terms of the Recovery Swap Transaction entered
into with GSMMDP.
Largo (Wayfarer CDO 2007-1), Ltd., issued in
May of 2007, is a collateralized bond obligation backed primarily
by a synthetic portfolio of corporate bonds.
The principal methodology used in rating and monitoring the transaction
are the following publications, which can be found at www.moodys.com
in the Credit Policy & Methodologies directory, in the Ratings
Moody's Approach to Rating Collateralized Loan Obligations (December 2008).
Moody's Approach to Rating Corporate Collateralized Synthetic Obligations
This publication incorporates rating criteria that apply to both collateralized
loan obligations and collateralized bond obligations. Other methodologies
and factors that may have been considered in the process of rating this
issue can also be found in the Credit Policy & Methodologies directory.
Ramon O. Torres
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service
Moody's takes rating action on notes issued by Largo (Wayfarer CDO 2007-1), Ltd.
Structured Finance Group
Moody's Investors Service
No Related Data.
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