London, 03 August 2011 -- Moody's Investors Service announced today that it has upgraded the ratings
of the following notes issued by Partholon CDO 1 plc:
Issuer: Partholon CDO I PLC
....EUR271.443M Class A-1 Floating
Rate Notes, Upgraded to Aaa (sf); previously on Jun 22,
2011 Aa3 (sf) Placed Under Review for Possible Upgrade
....EUR9M Class A-3 Zero Coupon Notes,
Upgraded to Aaa (sf); previously on Jun 22, 2011 Aa3 (sf) Placed
Under Review for Possible Upgrade
....EUR31.432M Class B-1 Floating
Rate Notes, Upgraded to A3 (sf); previously on Jun 22,
2011 Ba2 (sf) Placed Under Review for Possible Upgrade
....EUR2.25M Class B-2 Fixed
Rate Notes, Upgraded to A3 (sf); previously on Jun 22,
2011 Ba2 (sf) Placed Under Review for Possible Upgrade
....EUR4M Class B-3 Zero Coupon Notes,
Upgraded to A3 (sf); previously on Jun 22, 2011 Ba2 (sf) Placed
Under Review for Possible Upgrade
....EUR28.45M Class C-1 Floating
Rate Notes, Upgraded to B1 (sf); previously on Jun 22,
2011 Caa3 (sf) Placed Under Review for Possible Upgrade
....EUR7.75M Class C-2 Fixed
Rate Notes, Upgraded to B1 (sf); previously on Jun 22,
2011 Caa3 (sf) Placed Under Review for Possible Upgrade
....EUR10M Class S Combination Notes,
Upgraded to Ba2 (sf); previously on Jun 22, 2011 Caa1 (sf)
Placed Under Review for Possible Upgrade
....EUR4M Class R Combination Notes,
Upgraded to A2 (sf); previously on Jun 22, 2011 Ba1 (sf) Placed
Under Review for Possible Upgrade
....EUR24M Class J Combination Notes,
Upgraded to Aaa (sf); previously on Jun 22, 2011 Aa2 (sf) Placed
Under Review for Possible Upgrade
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.
RATINGS RATIONALE
Partholon CDO 1 plc, issued in October 2003, is a single currency
Collateralised Loan Obligation ("CLO") backed by a portfolio of mostly
leveraged European loans. The portfolio is managed by The Governor
& Company of the Bank of Ireland. This transaction completed
its reinvestment period on 09 January 2009. It is predominantly
composed of senior secured loans.
According to Moody's, the rating actions taken on the notes
are primarily a result of applying Moody's revised CLO assumptions described
in "Moody's Approach to Rating Collateralized Loan Obligations"
published in June 2011. The actions also reflect consideration
of deleveraging of the senior notes since the rating action in December
2009.
Today's actions reflect key changes to the modeling assumptions,
which incorporate (1) a removal of the temporary 30% default probability
macro stress implemented in February 2009, (2) increased BET liability
stress factors as well as (3) change to a fixed recovery rate modeling
framework. Additional changes to the modeling assumptions include
adjustments to the equity cash-flows haircuts applicable to combination
notes.
Moody's notes that the Class A-1 and A-3 notes have
been paid down by approximately 45% or EUR 126.4 million
since the rating action in December 2009. As a result of the deleveraging,
the overcollateralization ratios have since increased. Moody's
used the data in the latest trustee report dated July 5, 2011 (after
accounting for the EUR 91.477,324 principal repayment of
the Class A-1 and A-3 notes on 15th July 2011) to calculate
the Class A/B and Class C overcollateralization ratios at 129.03%
and 108.06% respectively, compared to November 2009
trustee reported levels of 111.26% and 99.15%
respectively.
Due to the impact of revised and updated key assumptions referenced in
"Moody's Approach to Rating Collateralized Loan Obligations" published
in June 2011, key model inputs used by Moody's in its analysis,
such as the portfolio par amount, WARF, diversity score,
and weighted average recovery rate, may be different from the trustee's
reported numbers. In its base case, Moody's analyzed
the underlying collateral pool to have a performing par and principal
proceeds balance of EUR 252.179 million, a weighted average
default probability of 25.71% (consistent with a WARF of
3943), a weighted average recovery rate upon default of 46.40%
for a Aaa liability target rating, and a diversity score of 28.
The default probability is derived from the credit quality of the collateral
pool and Moody's expectation of the remaining life of the collateral
pool. The average recovery rate to be realized 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 91%
of the portfolio exposed to senior secured corporate assets would recover
50% upon default, while the remainder non first-lien
loan corporate assets would recover 10%. In each case,
historical and market performance trends and collateral manager latitude
for trading the collateral are also relevant factors. These default
and recovery properties of the collateral pool are incorporated in cash
flow model analysis where they are subject to stresses as a function of
the target rating of each CLO liability being reviewed.
Moody's notes that this transaction is subject to a high level of
macroeconomic uncertainty, as evidenced by 1) uncertainties of credit
conditions in the general economy and 2) the large concentration of speculative-grade
debt maturing between 2012 and 2014 which may create challenges for issuers
to refinance. CDO notes' performance may also be impacted
by 1) the manager's investment strategy and behavior and 2) divergence
in legal interpretation of CDO documentation by different transactional
parties due to embedded ambiguities.
Sources of additional performance uncertainties are described below:
1) Deleveraging: The main source of uncertainty in this transaction
is whether deleveraging from unscheduled principal proceeds will continue
and at what pace. Deleveraging may accelerate due to high prepayment
levels in the loan market and/or collateral sales by the manager,
which may have significant impact on the notes' ratings.
2) Moody's also notes that around 86% of the collateral pool consists
of debt obligations whose credit quality has been assessed through Moody's
credit estimates. Large single exposures to obligors bearing a
credit estimate have been subject to a stress applicable to concentrated
pools as per the report titled "Updated Approach to the Usage of Credit
Estimates in Rated Transactions" published in October 2009.
3) 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 such an asset has a liquidation value dependent on the nature
of the asset as well as the extent to which the asset's maturity
lags that of the liabilities.
The principal methodology used in this rating was "Moody's Approach to
Rating Collateralized Loan Obligations" published in June 2011.
Please see the Credit Policy page on www.moodys.com for
a copy of this methodology.
Moody's modeled the transaction using the Binomial Expansion Technique,
as described in Section 2.3.2.1 of the "Moody's Approach
to Rating Collateralized Loan Obligations" rating methodology published
in June 2011The cash flow model used for this transaction, whose
description can be found in the methodology listed above, is Moody's
EMEA Cash-Flow model.
In addition to the quantitative factors that are explicitly modeled,
qualitative factors are part of the 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, 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, may influence
the final rating decision.
REGULATORY DISCLOSURES
The rating has been disclosed to the rated entity or its designated agent(s)
and issued with no amendment resulting from that disclosure.
Information sources used to prepare the 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 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.
Moody's considers the quality of information available on the rated
entity, obligation or credit satisfactory for the purposes of issuing
a rating.
For ratings issued on a program, series or category/class of debt,
this announcement provides relevant 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 relevant 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 relevant 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.
Moody's adopts all necessary measures so that the information it uses
in assigning a 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.
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 on our website www.moodys.com for
further information.
Please see Moody's Rating Symbols and Definitions on the Rating Process
page on www.moodys.com for further information on the meaning
of each rating category and the definition of default and recovery.
Please see ratings tab on the issuer/entity page on www.moodys.com
for the last rating action and the rating history.
The date on which some ratings were first released goes back to a time
before Moody's ratings were fully digitized and accurate data may not
be available. Consequently, Moody's 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 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.
London
Raja Iyer
Vice President - Senior 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
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JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's upgrades EUR 354.3 m CLO notes of Partholon CDO 1 plc
