Moody's also affirms the ratings on $215.8 million of notes
New York, June 29, 2015 -- Moody's Investors Service has upgraded the rating on the following notes
issued by Voya CLO II, Ltd.:
U.S.$32,500,000 Class D Floating Rate
Deferrable Notes Due 2020, Upgraded to A1 (sf); previously
on February 21, 2014 Upgraded to A2 (sf)
Moody's also affirmed the ratings on the following notes:
U.S.$280,000,000 Class A-1-A
Floating Rate Notes Due 2020 (current outstanding balance of $79,946,022),
Affirmed Aaa (sf); previously on February 21, 2014 Affirmed
Aaa (sf)
U.S.$25,000,000 Class A-1-R
Variable Funding Floating Rate Notes Due 2020 (current outstanding balance
of $7,138,038), Affirmed Aaa (sf); previously
on February 21, 2014 Affirmed Aaa (sf)
U.S.$76,250,000 Class A-2 Floating
Rate Notes Due 2020, Affirmed Aaa (sf); previously on February
21, 2014 Affirmed Aaa (sf)
U.S. $25,000,000 Class B Floating Rate
Notes Due 2020, Affirmed Aaa (sf); previously on February 21,
2014 Upgraded to Aaa (sf)
U.S.$27,500,000 Class C Floating Rate
Deferrable Notes Due 2020, Affirmed Aaa (sf); previously on
February 21, 2014 Upgraded to Aaa (sf)
Voya CLO II, Ltd., issued in August 2006, is
a collateralized loan obligation (CLO) backed primarily by a portfolio
of senior secured loans. The transaction's reinvestment period
ended in August 2011.
RATINGS RATIONALE
This rating action is primarily a result of deleveraging of the senior
notes and an increase in the transaction's over-collateralization
(OC) ratio since August 2014. The Class A-1 notes have been
paid down by approximately 29.5% or $36.5
million since then. Based on the trustee's June 2015 report,
the Senior overcollateralization ratio is reported at 142.28%
versus the August 2014 level of 134.30%. In addition,
the deal has benefited from an improvement in the credit quality of the
portfolio.
The portfolio includes a number of investments in securities that mature
after the notes do. Based on Moody's calculation, securities
that mature after the notes do currently make up approximately 8.5%
of the portfolio. These investments could expose the notes to market
risk in the event of liquidation when the notes mature.
Methodology Used for the Rating Action
The principal methodology used in this rating was "Moody's Global Approach
to Rating Collateralized Loan Obligations" published in February 2014.
Please see the Credit Policy page on www.moodys.com for
a copy of this methodology.
Factors that Would Lead to an Upgrade or Downgrade of the Rating:
This transaction is subject to a number of factors and circumstances that
could lead to either an upgrade or downgrade of the ratings:
1) Macroeconomic uncertainty: CLO performance is subject to a) uncertainty
about credit conditions in the general economy and b) the large concentration
of upcoming speculative-grade debt maturities, which could
make refinancing difficult for issuers.
2) Collateral Manager: Performance can also be affected positively
or negatively by a) the manager's investment strategy and behavior and
b) differences in the legal interpretation of CLO documentation by different
transactional parties owing to embedded ambiguities.
3) Collateral credit risk: A shift towards collateral of better
credit quality, or better credit performance of assets collateralizing
the transaction than Moody's current expectations, can lead to positive
CLO performance. Conversely, a negative shift in credit quality
or performance of the collateral can have adverse consequences for CLO
performance.
4) Deleveraging: An important source of uncertainty in this transaction
is whether deleveraging from unscheduled principal proceeds will continue
and at what pace. Deleveraging of the CLO could accelerate owing
to high prepayment levels in the loan market and/or collateral sales by
the manager, which could have a significant impact on the notes'
ratings. Note repayments that are faster than Moody's current expectations
will usually have a positive impact on CLO notes, beginning with
those with the highest payment priority.
5) Recovery of defaulted assets: Fluctuations in the market value
of defaulted assets reported by the trustee and those that Moody's assumes
as having defaulted could result in volatility in the deal's OC levels.
Further, the timing of recoveries and whether a manager decides
to work out or sell defaulted assets create additional uncertainty.
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. Realization of higher than assumed recoveries
would positively impact the CLO.
6) Long-dated assets: The presence of assets that mature
after the CLO's legal maturity date exposes the deal to liquidation risk
on those assets. This risk is borne first by investors with the
lowest priority in the capital structure. Moody's assumes that
the terminal value of an asset upon liquidation at maturity will be equal
to the lower of an assumed liquidation value (depending on the extent
to which the asset's maturity lags that of the liabilities) or the asset's
current market value.
7) Sensitivity to default timing scenarios: The junior notes in
this CLO rely significantly on excess interest for additional credit enhancement.
However, the availability of such credit enhancement from excess
interest is subject to uncertainty relating to the timing and the amount
of defaults, and the transaction could be negatively affected if
the timing of defaults differs from Moody's assumptions.
Moody's modeled additional scenarios using concentrated default
timing profiles to assess the sensitivity of the notes' ratings
to volatility in the amount of excess interest available after defaults.
In addition to the base case analysis, Moody's also conducted sensitivity
analyses to test the impact of a number of default probabilities on the
rated notes relative to the base case modeling results, which may
be different from the current public ratings of the notes. Below
is a summary of the impact of different default probabilities (expressed
in terms of WARF) on all of the rated notes (by the difference in the
number of notches versus the current model output, for which a positive
difference corresponds to lower expected loss):
Moody's Adjusted WARF -- 20% (1806)
Class A-1-A: 0
Class A-1-R: 0
Class A-2: 0
Class B: 0
Class C: 0
Class D: +2
Moody's Adjusted WARF + 20% (2710)
Class A-1-A: 0
Class A-1-R: 0
Class A-2: 0
Class B: 0
Class C: 0
Class D: -2
Loss and Cash Flow Analysis:
Moody's modeled the transaction using a cash flow model based on the Binomial
Expansion Technique, as described in Section 2.3 of the "Moody's
Global Approach to Rating Collateralized Loan Obligations," published
in February 2014.
The key model inputs Moody's used in its analysis, such as par,
weighted average rating factor, diversity score and the weighted
average recovery rate, are based on its published methodology and
could differ from the trustee's reported numbers. In its base case,
Moody's analyzed the collateral pool as having a performing par and principal
proceeds balance of $278.4 million, defaulted par
of $2.8 million, a weighted average default probability
of 12.32% (implying a WARF of 2258), a weighted average
recovery rate upon default of 52.69%, a diversity
score of 44 and a weighted average spread of 2.87% (before
accounting for LIBOR floors).
Moody's incorporates the default and recovery properties of the collateral
pool in cash flow model analysis where they are subject to stresses as
a function of the target rating on each CLO liability reviewed.
Moody's derives the default probability from the credit quality of the
collateral pool and Moody's expectation of the remaining life of the collateral
pool. The average recovery rate for future defaults is based primarily
on the seniority of the assets in the collateral pool. Moody's
generally applies recovery rates for CLO securities as published in "Moody's
Approach to Rating SF CDOs". In some cases, alternative recovery
assumptions may be considered based on the specifics of the analysis of
the CLO transaction. In each case, historical and market
performance and the collateral manager's latitude for trading the collateral
are also factors.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and sensitivity
analysis, see the sections Methodology Assumptions and Sensitivity
to Assumptions of the disclosure form.
Moody's describes its loss and cash flow analysis in the section
"Ratings Rationale" of this press release.
Moody's quantitative analysis entails an evaluation of scenarios
that stress factors contributing to sensitivity of ratings and take into
account the likelihood of severe collateral losses or impaired cash flows.
Moody's weights the impact on the rated instruments based on its
assumptions of the likelihood of the events in such scenarios occurring.
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides certain regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this rating action, and
whose ratings may change as a result of this rating action, the
associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Shan Lai
Asst Vice President - Analyst
Structured Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Min Xu
VP - Sr Credit Officer/Manager
Structured Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's upgrades rating on $32.5 million of notes issued by Voya CLO II, Ltd.
