USD 67.5 million of debt securities affected
New York, November 22, 2010 -- Moody's Investors Service announced today the following rating actions
on North Street Referenced Linked Notes, 2005-9 Limited,
a collateralized debt obligation transaction (the "Collateralized Synthetic
Obligation" or "CSO"). The CSO, issued in 2005, references
a portfolio of synthetic corporate senior secured and senior unsecured
U.S.$10,000,000 Class B Floating Rate
Notes Notes, Upgraded to Aa2 (sf); previously on Feb 27,
2009 Downgraded to A2 (sf)
U.S.$25,000,000 Class C Floating Rate
Notes Notes, Upgraded to A3 (sf); previously on Feb 27,
2009 Downgraded to Ba1 (sf)
U.S.$18,500,000 Class D Floating Rate
Notes Notes, Upgraded to Ba2 (sf); previously on Feb 27,
2009 Downgraded to Caa1 (sf)
U.S.$14,000,000 Class E Floating Rate
Notes Notes, Upgraded to B3 (sf); previously on Feb 27,
2009 Downgraded to Caa3 (sf)
Moody's explained that the rating action is the result of the beneficial
effect of the passage of time and improvement of the credit quality of
the portfolio since the last rating action, including a reduction
in the portfolio concentration of names with adjusted rating of Caa1 and
below. Since closing, the subordination of the rated tranches
has been reduced by approximately 3.2%. The 10-year
weighted average rating factor (WARF) of the portfolio is 2736,
equivalent to B3, compared to a WARF of 3698 from the last rating
action in February 2009, excluding settled credit events.
The transaction maturity date is now less than two years away.
This rating action factors in a number of sensitivity analyses and stress
scenarios, as indicated below. Moody's presents the results
in terms of the number of notches' difference versus the base case model
output, where a higher number of notches corresponds to lower expected
losses and vice-versa:
Time to maturity - The committee has reviewed the impact
of a scenario consisting of reducing the maturity of the transaction by
6 months, keeping all other things equal. The result of this
scenario was one (Class B, Class D, and Class F), two
(Class C), or three (Class E) notches higher than the base case.
Market Implied Ratings ("MIRs") - MIRs were modeled in place
of the corporate fundamental rating to derive the default probability
of each corporate name in the reference portfolio. The gap between
an MIR and a Moody's corporate fundamental rating is an indicator of the
extent of the divergence of credit view between Moody's and the market
on each referenced name in the CSO portfolio. The result of this
scenario showed no impact compared to the base case.
Removing the adjustment on ratings for watch and outlook -
The result of this scenario was one notch better (Class C and Class E),
or not materially different (Class B, Class D, and Class F)
than the base case.
Stress on largest industry group -- All entities
in the Healthcare & Pharmaceuticals sector, the largest sector
concentration, representing 12% of the portfolio notional,
were notched down by one. The result of this scenario was one notch
worse (Class B and Class D) or not materially different (Class C,
Class E, and Class F) than the base case.
Defaulting Caa Referenced Entities - The result of this
stress scenario was one (Class F), three (Class B and Class E),
four (Class C) or seven (Class D) notches worse than the base case.
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 this rating was "Moody's Approach to
Corporate Collateralized Synthetic Obligations" published in September
Moody's analysis for this transaction is based on the CDOROM v2.6.
This model is available on moodys.com under Products and Solutions
-- Analytical models, upon return of a signed free
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 did not run a separate loss and cash flow analysis other than
the one already done using the CDOROM model. For a description
of the analysis, refer to the methodology and the CDOROM user 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 Corporate CSO liabilities, rating transitions in the reference
pool may have leveraged rating implications for the ratings of the Corporate
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 of the corporate
universe. Should macroeconomic 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.
Information sources used to prepare the credit rating are the following:
parties involved in the rating.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
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.
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.
Structured Finance Group
Moody's Investors Service
Senior Vice President
Structured Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's upgrades its ratings of North Street Referenced Linked Notes, 2005-9 Limited, a CSO
250 Greenwich Street
New York, NY 10007