Approximately EUR 299m debt affected
London, 23 March 2011 -- Moody's Investors Service announced today it has upgraded the ratings
of two classes and confirmed the rating of two classes of notes issued
by RMF Euro CDO III plc.
Issuer: RMF Euro CDO III Plc.
....EUR252M Class I Senior Secured Floating
Rate Notes, due 2021 (current balance of EUR 240,661,286),
upgraded to Aa1(sf); previously on Dec 23, 2010 Placed Under
Review for Possible Upgrade;
....EUR20.1M Class II Senior Secured
Floating Rate Notes, due 2021, upgraded to A2 (sf),
previously on Dec 23, 2010 Placed Under Review for Possible Upgrade;
....EUR14.7M Class III Deferrable Mezzanine
Floating Rate Notes, due 2021, Confirmed at Baa3 (sf),
previously on Dec 23, 2010 Placed Under Review for Possible Upgrade;
....EUR23.3M Class IV Deferrable Mezzanine
Floating Rate Notes, due 2021, Confirmed at B1 (sf),
previously on Dec 23, 2010 Placed Under Review for Possible Upgrade;
RATINGS RATIONALE
RMF Euro CDO III is a managed cash CLO with exposure to senior secured
loans (82%), mezzanine loans (3%), second lien
loans (9%) and high yield bonds (6%). End of reinvestment
period and amortisation for the transaction will start on the 11th August
2011.
According to Moody's, the rating actions are the result of an improvement
in the credit quality of the underlying portfolio. This is reflected
by the decrease in the weighted average rating factor (or 'WARF')
from 2973 down to 2891 and the reduction in the proportion of obligors
rated Caa1 or worse from 18.44% to 11.68%
of the portfolio between October 2009 and February 2011. In addition
OC levels have moderately improved from 118.86% to 125.58%
for Class I/II, 112.69% to 118.88% for
class III, 104.13% to 109.61% for class
IV and 100.53% to 105.89% for class V over
the same period. This partially due to the reduction of the proportion
of obligors rated Caa1 in the portfolio and to rising market prices of
assets carried at market value in OC computations.
In its base case, Moody's analyzed the underlying collateral pool
with an adjusted WARF of 3799, a diversity score of 41, a
weighted average recovery rate of 57% and a weighted average spread
of 2.85%.
In order to assess the sensitivity of the notes to changes in credit quality
of the portfolio and par, Moody's ran sensitivity analyses on key
parameters. For example, Moody's ran cases with a +/-
400 WARF change in the base case. In all cases, the impact
on the notes was less than 2 notches from the base case model outputs.
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 behaviour 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. 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.
The principal methodology used in this rating was Moody's Approach to
Rating Collateralized Loan Obligations published in August 2009.
Under this principal methodology, Moody's used its Binomial Expansion
Technique, whereby the pool is represented by independent identical
assets, the number of which 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.
The cash flow model used for this transaction, whose description
can be found in the methodology listed above, is Moody's CDO Edge.
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, weighted average
rating factor, diversity score, and weighted average recovery
rate, may be different from the trustee's reported numbers.
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.
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.
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
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 SAS
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SUBSCRIBERS: 44 20 7772 5454
Moody's Investors Service Ltd.
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Moody's upgrades and confirms CLO notes of RMF Euro CDO III PLC
