USD 1.32B of debt securities affected
New York, January 21, 2011 -- Moody's Investors Service announced today the following rating action
on Thames CDS, a collateralized debt obligation transaction (the
" Collateralized Synthetic Obligation" or "CSO").
The CSO, issued in 2005, references a portfolio of corporate
synthetic senior unsecured bonds.
Transaction: Thames CDS
....US$1320M Super Senior Notes,
Upgraded to Aa3; previously on Jan 12, 2010 Downgraded to A2
Moody's rating action today is the result of credit improvement of the
underlying portfolio, the shortened time to maturity of the CSO
and the level of credit enhancement remaining in the transaction.
Since the last rating action in January 2010, the 10-year
weighted average rating factor (WARF) of the portfolio improved from 2084
to 1958 , equivalent to B1. There are 12 reference entities
with a negative outlook and four on watch for downgrade compared to 20
with negative outlook and one entity on watch for downgrade from the previous
The reference portfolio has not experienced any credit events since the
last rating action. Since closing the portfolio has experienced
seven credit events, equivalent to 3.76 percent of the portfolio
based on the portfolio notional value at closing. In addition,
the portfolio is exposed to iStar Financial Inc., Clear Channel
Communications and Texas Competitive Electric Holdings Company.
LLC, none of which has been subject to a credit event, but
nonetheless modeled at Ca. The CSO has a remaining life of 1.4
Moody's rating action today factors in a number of sensitivity analyses
and stress scenarios, discussed below. Results are given
in terms of the number of notches' difference versus the base case,
where higher notches correspond to lower expected losses, and vice-versa:
Moody's reviews a scenario consisting of reducing the maturity
of the CSO by 6 months, keeping all other things equal. The
result of this run is comparable to that of the base case.
Market Implied Ratings ("MIRS") are modeled in place
of the corporate fundamental ratings to derive the default probability
of the reference entities in the portfolio. The gap between an
MIR and a Moody's corporate fundamental rating is an indicator of the
extent of the divergence in credit view between Moody's and the market.
The result of this run is comparable to that of the base case.
Moody's performs a stress analysis consisting of defaulting
all entities rated Caa1 and below. The result of this run is three
notches lower than in the base case.
Moody's conducts a sensitivity analysis consisting of notching
down by one the ratings of reference entities in the Banking, Finance,
Insurance and Real Estate sectors. The result from this run is
three notches below the base case result.
Removing the notch-down adjustment on ratings of all reference
entities on negative outlook and/or on watch for downgrade generates a
result that is comparable to the base case.
The rating does not address any potential losses that may result from
the early termination of the Swap.
In addition to the quantitative factors that are explicitly modeled,
qualitative factors are part of 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, and specific documentation features. 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.
The principal methodology used in these ratings was "Moody's Approach
to Corporate Collateralized Synthetic Obligations" published in September
Moody's analysis for this transaction is based on CDOROM v2.8.
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.
Due to the impact of revised and updated key assumptions referenced in
"Moody's Approach to Rating Corporate Synthetic Obligations", key
model inputs used by Moody's in its analysis may be different from the
manager/arranger's reported numbers. In particular, rating
assumptions for all publicly rated corporate credits in the underlying
portfolio have been adjusted for "Review for Possible Downgrade",
"Review for Possible Upgrade", or "Negative Outlook".
Moody's does not run a separate loss and cash flow analysis other than
the one already done by the CDOROM model. For a description of
the analysis, refer to the methodology and the CDOROM user's
guide on Moody's website.
Moody's analysis of CSOs is subject to uncertainties, the primary
sources of which include complexity, governance and leverage.
Although the CDOROM model captures many of the dynamics of the Corporate
CSO structure, it remains a simplification of the complex reality.
Of greatest concern are (a) variations over time in default rates for
instruments with a given rating, (b) variations in recovery rates
for instruments with particular seniority/security characteristics and
(c) uncertainty about the default and recovery correlations characteristics
of the reference pool. Similarly on the legal/structural side,
the legal analysis although typically based in part on opinions (and sometimes
interpretations) of legal experts at the time of issuance, is still
subject to potential changes in law, case law and the interpretations
of courts and (in some cases) regulatory authorities. The performance
of this CSO is also dependent on on-going decisions made by one
or several parties, including the Manager and the Trustee.
Although the impact of these decisions is mitigated by structural constraints,
anticipating the quality of these decisions necessarily introduces some
level of uncertainty in our assumptions. Given the tranched nature
of CSO liabilities, rating transitions in the reference pool may
have leveraged rating implications for the ratings of the CSO liabilities,
thus leading to a high degree of volatility. All else being equal,
the volatility is likely to be higher for more junior or thinner liabilities.
The base case scenario modeled fits into the central macroeconomic scenario
predicted by Moody's of a sluggish recovery scenario in the corporate
universe. Should macroeconomics conditions evolve towards a more
severe scenario, such as a double dip recession, the CSO rating
will likely be downgraded to an extent that depends on the expected severity
of the worsening conditions.
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.
Information sources used to prepare the credit rating are the following:
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 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.
Senior Vice President
Structured Finance Group
Moody's Investors Service
Structured Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's upgrades its rating of Thames CDS, a CSO
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