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Rating Action:

Moody's upgrades EUR 497.95m CLO notes of Eurocredit CDO VII PLC

09 Sep 2011

EUR 497.95 million of debt securities affected

Madrid, September 09, 2011 -- Moody's Investors Service announced today that it has upgraded the ratings of the following notes issued by Eurocredit CDO VII PLC:

....EUR221.5M Class A Senior Secured Floating Rate Notes due 2023, Upgraded to Aaa (sf); previously on Jun 22, 2011 Aa1 (sf) Placed Under Review for Possible Upgrade

....EUR38.3M Class B Senior Secured Deferrable Floating Rate Notes due 2023, Upgraded to Aa3 (sf); previously on Jun 22, 2011 A2 (sf) Placed Under Review for Possible Upgrade

....EUR31.2M Class C Senior Secured Deferrable Floating Rate Notes due 2023, Upgraded to Baa1 (sf); previously on Jun 22, 2011 Ba1 (sf) Placed Under Review for Possible Upgrade

....EUR29.1M Class D Senior Secured Deferrable Floating Rate Notes due 2023, Upgraded to Ba1 (sf); previously on Jun 22, 2011 B2 (sf) Placed Under Review for Possible Upgrade

....EUR19.8M Class E Senior Secured Deferrable Floating Rate Notes due 2023, Upgraded to Ba3 (sf); previously on Jun 22, 2011 Caa1 (sf) Placed Under Review for Possible Upgrade

....EUR4M Class P Combination Notes due 2023, Upgraded to Aa3 (sf); previously on Jun 22, 2011 Baa1 (sf) Placed Under Review for Possible Upgrade

....EUR8M Class Q Combination Notes due 2023, Upgraded to Ba2 (sf); previously on Jun 22, 2011 B3 (sf) Placed Under Review for Possible Upgrade

....EUR15M Class R Combination Notes due 2023, Upgraded to Baa3 (sf); previously on Jun 22, 2011 Ba2 (sf) Placed Under Review for Possible Upgrade

....EUR6M Class S Combination Notes due 2023, Upgraded to Aa3 (sf); previously on Jun 22, 2011 Baa1 (sf) Placed Under Review for Possible Upgrade

....EUR125M Revolving Loan Facility Notes, Upgraded to Aaa (sf); previously on Jun 22, 2011 Aa1 (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 R, 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 1.5% per annum respectively, 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 P, Q and S, 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

Eurocredit CDO VII PLC, issued in April 2007, is a multi-currency Collateralised Loan Obligation ("CLO") backed by a portfolio of mostly high yield European loans. The portfolio is managed by Intermediate Capital Managers Limited. This transaction will be in reinvestment period until 05 April 2013. 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.

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 (1) standardizing the modeling of collateral amortization profile, and (2) changing certain credit estimate stresses aimed at addressing the lack of forward looking indicators as well as time lags in receiving information required for credit estimate updates, and (3) adjustments to the equity cash-flows haircuts applicable to combination notes.

Reported WARF has increased from 2666 to 2909 between January 2011 and July 2011. However, this reported WARF overstates the actual deterioration in credit quality because of the technical transition related to rating factors of European corporate credit estimates, as announced in the press release published by Moody's on 1 September 2010. Additionally, defaulted securities total about EUR 2,96 million of the underlying portfolio compared to EUR7,86 million in January 2011.

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 EUR471 million, defaulted par of EUR2.96 million, a weighted average default probability of 23.54% (consistent with a WARF of 2942), a weighted average recovery rate upon default of 43.94% for a Aaa liability target rating, a diversity score of 41 and a weighted average spread of 2.88%. 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 84.9% 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 2015 which may create challenges for issuers to refinance. CLO 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) Moody's also notes that around 68% of the collateral pool consists of debt obligations whose credit quality has been assessed through Moody's credit estimates.

2) Recovery of defaulted assets: Market value fluctuations in defaulted assets reported by the trustee and those assumed to be defaulted by Moody's may create volatility in the deal's overcollateralization levels. Further, the timing of recoveries and the manager's decision to work out versus sell defaulted assets create additional uncertainties. Moody's analyzed defaulted recoveries assuming the lower of the market price and the recovery rate in order to account for potential volatility in market prices.

3) Weighted average life: The notes' ratings are sensitive to the weighted average life assumption of the portfolio, which may be extended due to the manager's decision to reinvest into new issue loans or other loans with longer maturities and/or participate in amend-to-extend offerings. Moody's tested for a possible extension of the actual weighted average life in its analysis.

4) Other collateral quality metrics: The deal is allowed to reinvest and the manager has the ability to deteriorate the collateral quality metrics' existing cushions against the covenant levels. Moody's analyzed the impact of assuming lower of reported and covenanted values for weighted average rating factor, weighted average spread, weighted average coupon, and diversity score. However, as part of the base case, Moody's considered spread and coupon levels higher than the covenant levels due to the large difference between the reported and covenant levels.

5) Foreign currency exposure: The deal has significant exposure to non-EUR denominated assets. Volatilities in foreign exchange rate will have a direct impact on interest and principal proceeds available to the transaction, which may affect the expected loss of rated tranches.

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 2011. In addition, due to the low diversity of the collateral pool, Moody's CDOROMTM was used to simulate default scenarios then applied as an input in the cash flow model.

The 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.

Madrid
Javier Hevia Portocarrero
Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service Espana, S.A.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

London
Ian Perrin
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's Investors Service Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid 28002
Spain
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's upgrades EUR 497.95m CLO notes of Eurocredit CDO VII PLC
No Related Data.
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