EUR 110 million of debt securities affected
London, 11 February 2011 -- Moody's Investors Service announced today the following rating actions
on notes issued by Eurocredit CDO II B.V.
....EUR76M Class I-B Senior Notes Notes,
Upgraded to Aa2 (sf); previously on Oct 8, 2010 Upgraded to
A3 (sf)
....EUR34M Class II Mezzanine Notes Notes,
Upgraded to B1 (sf); previously on Dec 21, 2009 Downgraded
to Caa2 (sf)
RATINGS RATIONALE
Eurocredit CDO II B.V. is a single currency CLO managed
by Intermediate Capital Managers Limited and issued in October 2000.
Assets backing this transaction include European high yield bonds and
senior secured loans. Since the reinvestment period of the transaction
ended in October 2005, the underlying portfolio has amortised by
45%.
The upgrade actions are driven by three main credit factors:
1- The significant amortisation of the portfolio constitutes one
of the main drivers of the rating upgrades. Such amortisation particularly
benefits the most senior classes of notes which redeemed by 68%
since closing in October 2000. The level of overcollateralization
of the Senior Notes has increased from 131.13% in August
2010 to 138.96% in December 2010.
2- A slight improvement in the credit quality of the portfolio
since the last rating action also contributed to the rating upgrades.
This includes the proportion of assets rated Caa1 and below decreased
by 3% since August 2010 and the weighted average rating factor
(WARF) remained stable. These measures were taken from the trustee
reports dated 31 December 2010 and 31 August 2010.
3- The current portfolio includes four assets (11% of the
portfolio) whose weighted average life is longer than the final maturity
of the transaction in October 2013. Supported by a continued rally
in the European leveraged loan market over the past months, better
recovery prospects upon sale of long dated assets led us to increase our
average liquidation value assumption from 30% to 70%,
in line with Moody's standard methodology assumptions.
4- Today's rating actions take into account the correction of certain
data input in the model at the time of the last rating action on 8 October
2010. Due to an administrative error, two performing bonds
in the portfolio were treated as having defaulted. This led to
an understatement of the performing par considered in our model used for
last rating action. Had this not occurred , the model output
of Class I-B and Class II notes would have been marginally higher
at that time.
As a base case, Moody's analyzed the underlying collateral pool
with an adjusted WARF of 3531 and a weighted average recovery rate of
43.48%. Standard correlation assumptions applicable
to corporate assets in the CDOROM2.7TM model have been used.
The principal methodology used in this rating was "Moody's Approach to
Rating Collateralized Loan Obligations" published in August 2009.
Under this methodology, Moody's relies on a simulation based framework
because of the lack of granularity in the transaction portfolio.
Moody's therefore used the CDOROM2.7TM model to generate default
and recovery scenarios for each asset in the portfolio which were then
used in Moody's EMEA Cash-Flow model in order to compute the associated
loss to each tranche in the structure. The description of Moody's
EMEA Cash-Flow model can be found in the methodology listed above.
Due to the impact of revised and updated key assumptions referenced in
"Moody's Approach to Rating Collateralized Loan Obligations" and "Annual
Sector Review (2009): Global CLOs", key model inputs used
by Moody's in its analysis, such as par, WARF, diversity
score, and weighted average recovery rate, may be different
from the trustee's reported numbers.
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 six months.
Furthermore, Moody's tested the sensitivity of model results to
key parameters for the rated notes. Among these, the agency
considered the impact of a two-notch rating downgrade for the largest
exposures (10% of the pool) on the model outputs. Moody's
also ran sensitivity analysis cases where the WARF was increased or decreased
by 200 points. The model results from these sensitivity tests are
not different from the Moody's current ratings by more than one notch.
Moody's also notes that 20% of the collateral pool consists of
debt obligations whose credit quality have been assessed through Moody's
credit estimates. Large single exposures to obligors bearing a
credit estimate have been considered for the analysis and applied a stress
applicable to concentrated pools with non publicly rated issuers as per
the report titled "Updated Approach to the Usage of Credit Estimates in
Rated Transactions" published in October 2009.
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; parties not involved in the ratings;
public information and confidential and proprietary Moody's Investors
Service 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.
In addition, Moody's publishes a weekly summary of structured finance
credit, ratings and methodologies, available to all registered
users of our website, at www.moodys.com/SFQuickCheck.
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
Lydia Ho
Associate Analyst
Structured Finance Group
Moody's Investors Service Hong Kong Ltd.
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077
Paris
Lisa Goldbaum
Senior Vice President
Structured Finance Group
Moody's France SAS
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's Investors Service Ltd.
One Canada Square
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London E14 5FA
United Kingdom
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Moody's upgrades EUR 110m CLO notes of Eurocredit CDO II B.V
