Moody's also affirms approximately EUR 41.1m CLO notes
London, 17 February 2014 -- Moody's Investors Service has announced today that it has taken
the following rating actions on the following notes issued by Partholon
CDO I PLC:
....EUR31.432M (current outstanding
balance of EUR 20.17M) Class B-1 Floating Rate Notes,
Upgraded to Aaa (sf); previously on Nov 14, 2013 Upgraded to
Aa2 (sf) and Placed Under Review for Possible Upgrade
....EUR2.25M (current outstanding balance
of EUR 1.44M) Class B-2 Fixed Rate Notes, Upgraded
to Aaa (sf); previously on Nov 14, 2013 Upgraded to Aa2 (sf)
and Placed Under Review for Possible Upgrade
....EUR4M (current outstanding balance of
EUR 2.56M) Class B-3 Zero Coupon Notes, Upgraded to
Aaa (sf); previously on Nov 14, 2013 Upgraded to Aa2 (sf) and
Placed Under Review for Possible Upgrade
....EUR28.45M Class C-1 Floating
Rate Notes, Affirmed B1 (sf); previously on Mar 8, 2013
Affirmed B1 (sf)
....EUR7.75M Class C-2 Fixed
Rate Notes, Affirmed B1 (sf); previously on Mar 8, 2013
Affirmed B1 (sf)
....EUR4M (current rated balance outstanding
of EUR 1.41M) Class R Combination Notes, Upgraded to Aaa
(sf); previously on Mar 8, 2013 Upgraded to Aa1 (sf)
....EUR24M (current rated balance outstanding
of EUR 348,167) Class J Combination Notes, Affirmed Aaa (sf);
previously on Mar 8, 2013 Affirmed Aaa (sf)
....EUR10M (current rated balance outstanding
of EUR 4.60M) Class S Combination Notes, Affirmed Baa1 (sf);
previously on Mar 8, 2013 Upgraded to Baa1 (sf)
Moody's also has withdrawn the ratings of the Classes A-1
and A-3 due to full redemption.
Partholon CDO I plc, issued in October 2003, is a Collateralised
Loan Obligation ("CLO") backed by a portfolio of mostly high
yield European loans. It is predominantly composed of senior secured
loans. The portfolio is managed by the Bank of Ireland.
This transaction ended its reinvestment period on 6 January 2009.
RATINGS RATIONALE
Today's actions on the notes are primarily a result of deleveraging of
the senior notes and subsequent improvement of over-collateralisation
ratios since the rating action in March 2013. Moody's had previously
upgraded the ratings on 14 November 2013 of Classes B-1,
B-2 and B-3 to Aa2 (sf) from Aa3 (sf) and left them on review
for upgrade due to significant loan prepayments. Today's actions
conclude the rating review of the transaction.
The Classes A-1 and A-3 have fully paid down, therefore
Classes B-1, B-2 and B-3 are now the most senior
classes, and have paid down by approximately EUR 13.5m (35.8%)
on 14th January 2014 payment date. As a result of the deleveraging,
over-collateralisation has increased. As of the trustee's
January 2014 report, the Classes B had an over-collateralisation
ratio of 189.58%, compared with 149.53%
12 months ago. The reported OC ratios don't reflect the payment
that took place on 14th January 2014.
The ratings of the Combination Notes address the repayment of the rated
balance on or before the legal final maturity. For Class S,
the 'rated balance' is equal at any time to the principal amount of the
combination note on the issue date increased by the rated coupon of 3.0%
per annum accrued on the rated balance on the preceding payment date minus
the aggregate of all payments made from the issue date to such date,
either through interest or principal payments. For Classes J and
R which do not accrue interest, the 'rated balance' is equal at
any time to the principal amount of the combination note on the issue
date minus the aggregate of all payments made from the issue date to such
date, either through interest or principal payments. The
rated balance may not necessarily correspond to the outstanding notional
amount reported by the trustee.
The key model inputs Moody's uses in its analysis, such as
par, weighted average rating factor, diversity score and the
weighted average recovery rate, are based on its published methodology
and could differ from the trustee's reported numbers. In its base
case, Moody's analysed the underlying collateral pool as having
a performing par and principal proceeds balance of EUR 70.6 million,
defaulted par of EUR 10.4million, a weighted average default
probability of 28.59% (consistent with a WARF of 5416 with
a weighted average life of 2.33 years), a weighted average
recovery rate upon default of 49.01% for a Aaa liability
target rating, a diversity score of 9 and a weighted average spread
of 3.40%.
The default probability derives from the credit quality of the collateral
pool and Moody's expectation of the remaining life of the collateral
pool. The estimated average recovery rate on future defaults is
based primarily on the seniority of the assets in the collateral pool.
For a Aaa liability target rating, Moody's assumed that a
recovery of 50% of the 97.17% of the portfolio exposed
to first-lien senior secured corporate assets upon default and
of 15% of the remaining non-first-lien loan corporate
assets upon default. In each case, historical and market
performance and a collateral manager's latitude to trade collateral
are also relevant factors. Moody's incorporates these default
and recovery characteristics of the collateral pool into its cash flow
model analysis, subjecting them to stresses as a function of the
target rating of each CLO liability it is analyzing.
Methodology Underlying the Rating Action:
The principal methodology used in this rating was "Moody's Global Approach
to Rating Collateralized Loan Obligations" published in November 2013.
Please see the Credit Policy page on www.moodys.com for
a copy of this methodology.
Factors that would lead to an upgrade or downgrade of the rating:
In addition to the base-case analysis, Moody's conducted
sensitivity analyses on the key parameters for the rated notes,
for which it assumed lower credit quality in the portfolio to address
refinancing risk. Loans to European corporates rated B3 or lower
and maturing between 2014 and 2015 make up approximately 18.2%
of the portfolio, which could make refinancing difficult.
Moody's ran a model in which it raised the base case WARF to 6081 by forcing
ratings on 50% of the refinancing exposures to Ca; the model
generated outputs that were in line with base-case results.
This transaction is subject to a high level of macroeconomic uncertainty,
which could negatively affect the ratings on the note, in light
of 1) uncertainty about credit conditions in the general economy and 2)
the large concentration of lowly- rated debt maturing between 2014
and 2015, which may create challenges for issuers to refinance.
CLO notes' performance may also be impacted either positively or
negatively by 1) the manager's investment strategy and behaviour
and 2) divergence in the legal interpretation of CDO documentation by
different transactional parties due to because of embedded ambiguities.
Additional uncertainty about performance is due to the following:
Portfolio amortisation: The main source of uncertainty in this transaction
is the pace of amortisation of the underlying portfolio, which can
vary significantly depending on market conditions and have a significant
impact on the notes' ratings. Amortisation could accelerate
as a consequence of high loan prepayment levels or collateral sales by
the liquidation agent/the collateral manager or be delayed by an increase
in loan amend-and-extend restructurings. Fast amortisation
would usually benefit the ratings of the notes beginning with the notes
having the highest prepayment priority.
Around 77.31% of the collateral pool consists of debt obligations
whose credit quality Moody's has assessed by using credit estimates.
As part of its base case, Moody's has stressed large concentrations
of single obligors bearing a credit estimate as described in "Updated
Approach to the Usage of Credit Estimates in Rated Transactions,"
published in October 2009 and available at https://www.moodys.com/research/Updated-Approach-to-the-Usage-of-Credit-Estimates-in-Rated--PBC_120461.
Recovery of defaulted assets: Market value fluctuations in trustee-reported
defaulted assets and those Moody's assumes have defaulted can result
in volatility in the deal's over-collateralisation levels.
Further, the timing of recoveries and the manager's decision
whether to work out or sell defaulted assets can also result in additional
uncertainty. Moody's analysed defaulted recoveries assuming
the lower of the market price or the recovery rate to account for potential
volatility in market prices. Recoveries higher than Moody's
expectations would have a positive impact on the notes' ratings.
Long-dated assets: Currently the transaction is exposed to
21.16% of long dated assets. The presence of assets
that mature beyond the CLO's legal maturity date exposes the deal
to liquidation risk on those assets. Moody's assumes that,
at transaction maturity, the liquidation value of such an asset
will depend on the nature of the asset as well as the extent to which
the asset's maturity lags that of the liabilities. Liquidation
values higher than Moody's expectations would have a positive impact
on the notes' ratings.
Lack of portfolio granularity: The performance of the portfolio
depends to a large extent on the credit conditions of a few large obligors
with Caa1 or lower/non-investment-grade ratings, especially
when they default. Because of the deal's low diversity score
and lack of granularity, Moody's supplemented its typical
Binomial Expansion Technique analysis with a simulated default distribution
using Moody's CDOROMTM software and an individual scenario analysis.
In addition to the quantitative factors that Moody's explicitly
modelled, qualitative factors are part of the rating committee's
considerations. These qualitative factors include the structural
protections in the transaction, its recent performance given the
market environment, the legal environment, specific documentation
features, the collateral manager's track record and the potential
for selection bias in the portfolio. 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,
can influence the final rating decision.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and sensitivity
analysis, see the sections Methodology Assumptions and Sensitivity
to Assumptions of the disclosure form.
Moody's did not receive or take into account a third-party assessment
on the due diligence performed regarding the underlying assets or financial
instruments related to the monitoring of this transaction in the past
six months.
The analysis relies on an assessment of collateral characteristics to
determine the collateral loss distribution, that is, the function
that correlates to an assumption about the likelihood of occurrence to
each level of possible losses in the collateral. As a second step,
Moody's evaluates each possible collateral loss scenario using a
model that replicates the relevant structural features to derive payments
and therefore the ultimate potential losses for each rated instrument.
The loss a rated instrument incurs in each collateral loss scenario,
weighted by assumptions about the likelihood of events in that scenario
occurring, results in the expected loss of the rated instrument.
As the section on loss and cash flow analysis describes, Moody's
quantitative analysis entails an evaluation of scenarios that stress factors
contributing to sensitivity of ratings and take into account the likelihood
of severe collateral losses or impaired cash flows. Moody's
weights the impact on the rated instruments based on its assumptions of
the likelihood of the events in such scenarios occurring.
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.
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.
Mariona Serrat
Associate 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
Ian Perrin
VP - Sr Credit Officer/Manager
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 upgrades EUR 25.6m CLO notes of Partholon CDO I PLC
