Paris, February 04, 2011 -- Moody's Investors Service announced today the following rating actions
on notes issued by Fulham Road Finance Limited, a CDO square referencing
a portfolios of corporate and sovereign entities
Issuer: Fulham Road Finance Limited
....EUR70M Class A Notes, Upgraded to
Caa1 (sf); previously on Sep 8, 2009 Downgraded to Caa2 (sf)
....EUR95M Class B Notes, Upgraded to
Caa2 (sf); previously on Sep 8, 2009 Downgraded to Caa3 (sf)
....EUR40M Class C Notes, Upgraded to
Caa3 (sf); previously on Sep 8, 2009 Downgraded to Ca (sf)
....EUR20M Class D Notes, Upgraded to
Caa3 (sf); previously on Sep 8, 2009 Downgraded to Ca (sf)
RATINGS RATIONALE
Moody's explained that the rating actions taken on Classes A and B were
driven by the significant amount of subordination protecting them.
The upgrades also illustrate that the tranches have a slightly better
credit profile than those immediately junior. The upgrades of the
Classes C and D notes were driven by Moody's belief that these tranches
are likely be repaid in full when they mature. Moody's conducted
sensitivity analysis including a scenario of multiple defaults in the
reference pool resulting in tranche writedowns. Given the shorter
time to maturity, losses to these tranches within the next two years
is likely to be remote. Moody's noted that the ratings of
the junior Classes E and F notes remain unchanged based on their thin
subordination levels. They are directly exposed to 0.3%
of Ca rated reference entities and also indirectly through the bespoke
CDOs.
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 results that were no more than two notches away from
the assigned ratings.
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 CDOROM™.
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 six 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.
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.
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
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.
Paris
Bongani Dlamini
Analyst
Structured Finance Group
Moody's France SAS
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 France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's upgrades EUR 225m CSO notes of Fulham Road Finance Limited
