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.
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, parties not involved in the ratings,
public information, and confidential and proprietary Moody's Investors
Service 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.
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.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's upgrades EUR 7 million CLO notes of Leopard CLO V B.V.
