EUR 96 million and USD 58 million of debt securities affected
London, 08 April 2011 -- Moody's Investors Service announced today the following rating actions
on notes issued by Selecta CDO, a collateralized debt obligation
transaction referencing a managed portfolio of corporate entities (the
"Corporate Synthetic Obligation" or "CSO").
Issuer: Selecta CDO
....EUR6M Series 2005-1 Class A Secured
Floating Rate Notes due 30 June 2012, Upgraded to Baa2 (sf);
previously on Mar 10, 2009 Downgraded to Ba1 (sf)
....EUR80.25M Series 2005-1
Class B1 Secured Floating Rate Notes due 30 June 2012, Upgraded
to Ba2 (sf); previously on Mar 10, 2009 Downgraded to Ba3 (sf)
....US$50M Series 2005-2 Class
B2 Secured Floating Rate Notes due 30 June 2012, Upgraded to Ba2
(sf); previously on Mar 10, 2009 Downgraded to Ba3 (sf)
....US$8M Series 2005-2 Class
C2 Secured Fixed Rate Notes due 30 June 2012, Upgraded to B3 (sf);
previously on Sep 8, 2009 Downgraded to Caa1 (sf)
....EUR9.75M Series 2005-1 Class
C1 Secured Floating Rate Notes due 30 June 2012, Upgraded to B3
(sf); previously on Sep 8, 2009 Downgraded to Caa1 (sf)
RATINGS RATIONALE
Moody's explained that the rating actions taken today are the result of
the relatively stable credit quality of the reference portfolio and the
shorter time to maturity (June 2012) which reduces the credit risk exposure
of the tranches. The 10 year weighted average rating factor of
the portfolio, adjusted with forward looking measures, is
680, equivalent to an average rating of the current portfolio of
Ba1. The transaction has suffered only one credit event since the
last rating action in Sep 2009. The Banking, Insurance and
Telecommunications sectors are the most represented, weighting 17.55%,
14.34% and 10.06%, respectively,
of the portfolio notional. Furthermore 21.19% of
the reference portfolio is exposed to subordinated debt from Banking and
Insurance industry sectors. For this deal each corporate name has
a 40% fixed recovery rate.
Moody's also performed sensitivity analysis consisting in modeling Moody's
market implied rating in place of the corporate fundamental rating to
derive the default probability of each corporate name in the reference
portfolio. Moody's market implied ratings are derived from observable
CDS spread on each corporate name and mapped to Moody's rating scale.
The gap between a Market implied rating and a Moody's corporate fundamental
rating is an indicator of the extent of the divergence of credit view
between Moody's and the market on each referenced name in the CSO portfolio.
This run generated a result that was not more than 4 notches lower than
the one modeled under the base case run.
In addition to the quantitative factors that are explicitly modeled,
qualitative factors are part of 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, and specific documentation features. 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.
The principal methodology used in this rating was "Moody's Approach to
Rating Corporate Synthetic Obligations" rating methodology published in
September 2009.
Moody's analysis for this transaction is based on the CDOROMTM.
This model is available on moodys.com under Products and Solutions
-- Analytical models, upon return of a signed free
license agreement.
Moody's Investors Service did not receive or take into account a third
party due diligence report on the underlying assets or financial instruments
related to the monitoring of this transaction in the past 6 months.
Due to the impact of revised and updated key assumptions referenced in
"Moody's Approach to Rating Corporate Synthetic Obligations", 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".
Moodys did not run a separate loss and cash flow analysis other than the
one already done using the CDOROM model. For a description of the
analysis, refer to the methodology and the CDOROM user guide on
Moodys website.
Moody's analysis of corporate CSOs is subject to uncertainties,
the primary sources of which includes complexity, governance and
leverage. Although the CDOROM model capture many of the dynamics
of the Corporate CSO structure, it remains a simplification of the
complex reality. Of greatest concern are (a) variations over time
in default rates for instruments with a given rating, (b) variations
in recovery rates for instruments with particular seniority/security characteristics
and (c) uncertainty about the default and recovery correlations characteristics
of the reference pool. Similarly on the legal/structural side,
the legal analysis although typically based in part on opinions (and sometimes
interpretations) of legal experts at the time of issuance, is still
subject to potential changes in law, case law and the interpretations
of courts and (in some cases) regulatory authorities. Although
the impact of these decisions is mitigated by structural constraints,
anticipating the quality of these decisions necessarily introduces some
level of uncertainty in our assumptions. Given the tranched nature
of Corporate CSO liabilities, rating transitions in the reference
pool may have leveraged rating implications for the ratings of the Corporate
CSO liabilities, thus leading to a high degree of volatility.
All else being equal, the volatility is likely to be higher for
more junior or thinner liabilities. The base case scenario modeled
fits into the central macroeconomic scenario predicted by Moody's of a
sluggish recovery scenario of the corporate universe. Should macroeconomics
conditions evolves towards a more severe scenario such as a double dip
recession, the CSO rating will likely be downgraded to an extent
depending on the expected severity of the worsening conditions.
REGULATORY DISCLOSURES
The rating has been disclosed to the rated entity or its designated agents
and issued with no amendment resulting from that disclosure
Information sources used to prepare the credit rating are the following:
parties involved in the ratings and public information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
Moody's Investors Service may have provided Ancillary or Other Permissible
Service(s) to the rated entity or its related third parties within the
three years preceding the Credit Rating Action. Please see the
ratings disclosure page www.moodys.com/disclosures on our
website for further information.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit 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.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
London
Branimir Jovanovic
Associate Analyst
Structured Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
London
Neelam S. Desai
Senior Vice President
Structured Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
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 upgrades CSO notes of Selecta CDO
