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Rating Action:

Moody's upgrades EUR 7 million CLO notes of Leopard CLO V B.V.

Global Credit Research - 11 Apr 2011

EUR 16 million of notes confirmed

London, 11 April 2011 -- Moody's Investors Service announced today the following rating actions on notes issued by Leopard CLO V B.V.

Issuer: Leopard CLO V B.V.

....EUR7M Class F Secured Deferrable Floating Rate Notes due 2023, Upgraded to Caa3 (sf); previously on Dec 23, 2010 Ca (sf) Placed Under Review for Possible Upgrade

....EUR13M Class E-1 Secured Deferrable Floating Rate Notes due 2023, Confirmed at Caa3 (sf); previously on Dec 23, 2010 Caa3 (sf) Placed Under Review for Possible Upgrade

....EUR3M Class E-2 Secured Deferrable Fixed Rate Notes due 2023, Confirmed at Caa3 (sf); previously on Dec 23, 2010 Caa3 (sf) Placed Under Review for Possible Upgrade

RATINGS RATIONALE

Leopard CLO V B.V., issued in May 2007, is a multicurrency collateralised loan obligation backed by a portfolio of mostly high yield European loans. The asset pool comprises approximately EUR 318 million of loans, which are managed by M&G. This transaction has 2.3 years remaining until the end of the reinvestment period. The portfolio is denominated in EUR, GBP and USD. It is composed of 83% senior secured loans. According to Moody's, the upgrade rating action taken on the class F notes is a result primarily of the increase in the overcollateralization cushion and of the improvement of the portfolio credit quality since the last rating action. According to the February 2011 investor report, the class F OC level is 105.5%, versus 102.7% in September 2009. In parallel, the Caa bucket has been reduced from 11.2% to 7.8% during the same period while the reported weighted average rating factor ("WARF") has remained in the 2700 area.

This reported WARF however understates the actual improvement in the portfolio credit quality because of the technical adjustment of rating factors effected in September 2010. Hence effectively, the WARF of this portfolio has improved by about 7%. Currently the CLO is passing all OC tests in the transaction documentation and none of the notes have partially redeemed so far. Moody's highlights however that, compared to market standard, the OC levels currently reported are inflated by at least 5% across the different classes of notes, as they include EUR 19 million of undrawn uncommitted amount from the variable funding notes ("VFN") in the assets in the OC numerator without giving consideration to the equivalent liability in the OC denominator. These increased levels have not previously been taken into account in Moody's ratings, but were used in its analysis for today's rating action. Moody's found that the model outputs using these increased OC levels could be up to 3 notches below the levels obtained using market standard calculation, as the level of protection for the rated notes is lower when the inflated OC is considered. However, the current ratings of the other classes of notes issued under this transaction were confirmed given that the positive impact of the improvement in performance metrics reflected in the investor report offset the negative impact of the adjusted OC levels.

In the base case, Moody's analyzed the underlying collateral pool with an adjusted weighted average rating factor of 3788, a diversity score of 37 and a weighted-average recovery rate of 58%.

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 CLO documentation by different transactional parties due to embedded ambiguities.

The principal methodology used in this rating was "Moody's Approach to Rating Collateralized Loan Obligations" published in August 2009.

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.

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 amount, weighted average rating factor, diversity score, and weighted average recovery rate, may be different from the trustee's reported numbers.

Moody's also notes that around 70% of the collateral pool consists of debt obligations whose credit quality has been assessed through Moody's credit estimates.

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.

Under this methodology, Moody's used its Binomial Expansion Technique, whereby the pool is represented by independent identical assets, the number of which is being determined by the diversity score of the portfolio. The default and recovery properties of the collateral pool are incorporated in a cash flow model where the default probabilities are subject to stresses as a function of the target rating of each CLO liability being reviewed. The default probability range 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 and jurisdiction of the assets in the collateral pool.

Moody's also ran sensitivity analyses on key parameters for the rated notes. For instance, modeling the portfolio using the worse of its current or covenant matrix point parameters had an impact of no more than 1 notch on the model output across the capital structure.

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London
Lydia Ho
Associate Analyst
Structured Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Paris
Florence Tadjeddine
VP - Senior Credit Officer
Structured Finance Group
Moody's France SAS
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's Investors Service Ltd.
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SUBSCRIBERS: 44 20 7772 5454

Moody's upgrades EUR 7 million CLO notes of Leopard CLO V B.V.
No Related Data.
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