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Rating Action:

Moody's upgrades EUR 75.63m CLO notes of Melchior CDO I S.A.

25 May 2010

London, 25 May 2010 -- Moody's Investors Service announced today the following rating actions on notes issued by Melchior CDO I S.A

EUR256M Class A Floating Rate Notes, due 2013 (currently 75,630,783 outstanding), upgraded to A2; previously on Nov 17, 2009 downgraded to A3.

This transaction is a managed leveraged loan collateralised loan obligation with exposure to loans, high yield debt and 23% structured finance securities.

According to Moody's, the rating action taken on the note is the result of continued amortisation of the underlying portfolio. This is observed through a decrease in the outstanding notional size of Class A from EUR 100,058,277 in October 2009 to EUR 75,630,783 in March 2010. Overcollateralisation for Class A notes increased from 187.97% in November 2009 to 216.77% in Mar 2010.

Moody's notes that a material proportion of the collateral pool consist of assets whose scheduled amortization may exceed the legal maturity of Melchior CDO I S.A. (long dated loans). In addition to a long dated loan composition of 17%, the maturities of a number of structured finance securities (13% of portfolio) may also potentially exceed the legal maturity of the notes issued by Melchior CDO I S.A. Long dated assets will have to be sold at the maturity of the notes and their liquidation will expose investors to market risk. These risks have been considered in the analysis by accounting for low liquidation values for those assets, according to Moody's methodology.

Moody's also carried out a number of sensitivity analyses, including consideration of a further decline in portfolio WARF quality combined with a decrease in the expected recovery rates and a decrease in the recovery value of the long dated loans. Application of a resecuritisation stress to structured finance assets in addition to sensitivity tests relating to their maturity was also performed. Due to the impact of all the below mentioned stresses, key model inputs used by Moody's in its analysis, such as par, weighted average rating factor, and weighted average recovery rate, may be different from trustee's reported numbers.

As a result of amortisations, the remaining portfolio continues to become increasingly concentrated with the current top five issuers now accounting for 22% of the overall pool.

Moody's also notes that a material proportion of the collateral pool consists of debt obligations whose credit quality has been assessed through Moody's credit estimates. As credit estimates do not carry credit indicators such as ratings reviews and outlooks, a stress of a two notch-equivalent assumed downgrade was applied to each of these estimates as described in Moody's Updated Approach to the Usage of Credit Estimates in Rated Transactions (October 2009) .

Given the amortising nature of the portfolio, the behavior of the assets was modeled using a simulation approach instead of the binomial expansion technique.

Moody's monitors this transaction using primarily the methodology and its supplements for cash flow CLOs as described in Moody's Rating Methodology papers:

--Moody's Approach to Rating Collateralized Loan Obligations (August 2009)

This report can be found at www.moodys.com in the Research and Ratings directory, in the Ratings Methodologies subdirectory. Other methodologies and factors that may have been considered in the process of rating these issuances can also be found in the Ratings Methodologies subdirectory. In addition, Moody's publishes a weekly summary of structured finance credit, ratings and methodologies, available to all registered users of our website, at www.moodys.com/SFQuickCheck.

London
Son Nguyen
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 S.A.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's upgrades EUR 75.63m CLO notes of Melchior CDO I S.A.
No Related Data.
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