Moody's also affirms the ratings on $90.9 million of notes
New York, January 09, 2018 -- Moody's Investors Service has upgraded the rating on the following notes
issued by Greenbriar CLO, Ltd.:
U.S. $40,000,000 Class D Floating Rate
Senior Secured Deferrable Interest Extendable Notes Due 2021, Upgraded
to A3 (sf); previously on July 28, 2017 Upgraded to Baa1 (sf)
Moody's also affirmed the ratings on the following notes:
U.S. $60,000,000 Class B Floating Rate
Senior Secured Extendable Notes Due 2021 (current outstanding balance
of $17,983,408), Affirmed Aaa (sf); previously
on July 28, 2017 Affirmed Aaa (sf)
U.S. $50,000,000 Class C Floating Rate
Senior Secured Deferrable Interest Extendable Notes Due 2021, Affirmed
Aaa (sf); previously on July 28, 2017 Upgraded to Aaa (sf)
U.S. $40,000,000 Class E Floating Rate
Senior Secured Deferrable Interest Extendable Notes Due 2021 (current
outstanding balance of $22,955,095), Affirmed
Ba3 (sf); previously on July 28, 2017 Affirmed Ba3 (sf)
Greenbriar CLO, Ltd., issued in December 2007,
is a collateralized loan obligation (CLO) backed primarily by a portfolio
of senior secured loans with exposure to equity, illiquid loans
and legacy defaulted assets. The transaction's reinvestment period
ended in November 2014.
RATINGS RATIONALE
These rating actions are primarily a result of deleveraging of the senior
notes and an increase in the transaction's over-collateralization
(OC) ratios since July 2017. The Class A notes were paid off and
Class B notes have been paid down by approximately 70.0%
or $42.0 million since then. Based on Moody's
calculation, the OC ratios for the Class A/B, Class C,
Class D and Class E notes are currently 878.94%, 232.50%,
146.38%, and 120.72%, respectively,
versus July 2017 levels of 312.69%, 179.32%,
133.70%, and 116.67%, respectively.
Nevertheless, the credit quality of the portfolio has deteriorated
since July 2017. Based on Moody's calculation, the
weighted average rating factor (WARF) is currently 4285 compared to 3898
at that time. The deterioration in WARF is primarily due to percentage
increase in assets with a Moody's default probability rating of Caa1 or
below. Based on Moody's calculation, which include adjustments
for ratings with a negative outlook, ratings on review for downgrade
and stale credit estimates, assets with a Moody's default probability
rating of Caa1 or below currently make up 41.0% of the portfolio,
compared to 36.4% in July 2017. Moody's also notes
that the deal holds a material par amount of thinly traded or untraded
loans, whose lack of liquidity may pose additional risks especially
for the Class D and the Class E notes relating to the issuer's ultimate
ability to pursue a liquidation of such assets, especially if the
sales can be transacted only at heavily discounted price levels.
The portfolio includes a number of investments in securities that mature
after the notes do (long-dated assets). Based on Moody's
calculation, the long-dated assets currently make up approximately
7.3% or $9.8 million of the portfolio.
These investments could expose the notes to market risk in the event of
liquidation when the notes mature.
Methodology Underlying the Rating Action:
The principal methodology used in these ratings was "Moody's Global Approach
to Rating Collateralized Loan Obligations" published in August 2017.
Please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
Factors that Would Lead to an Upgrade or Downgrade of the Ratings
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 and illiquid assets: Repayment of the notes
at their maturity will be highly dependent on the issuer's successful
monetization of illiquid assets and those that mature after the CLO's
legal maturity date (long-dated assets). This risk in turn
may be contingent upon issuer's ability and willingness to sell these
assets. This risk is borne first by investors with the lowest priority
in the capital structure. However, actual long-dated
and illiquid asset exposures and prevailing market prices and conditions
at the time of liquidation will drive the deal's actual losses,
if any.
7) Exposure to assets with low credit quality and weak liquidity:
The presence of assets rated Caa3 with a negative outlook, Caa2
or Caa3 on review for downgrade or the worst Moody's speculative grade
liquidity (SGL) rating, SGL-4, exposes the notes to
additional risks if these assets default. The historical default
rate is higher than average for these assets. Due to the deal's
exposure to such assets, which constitute around $3.4
million of par, Moody's ran a sensitivity case defaulting those
assets.
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% (3428)
Class B: 0
Class C: 0
Class D: +2
Class E: +1
Moody's Adjusted WARF + 20% (5142)
Class B: 0
Class C: 0
Class D: -1
Class E: 0
Loss and Cash Flow Analysis:
Moody's modeled the transaction using a cash flow model based on
the Binomial Expansion Technique, as described in "Moody's Global
Approach to Rating Collateralized Loan Obligations."
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 $147.4 million,
defaulted par of $35.3 million, a weighted average
default probability of 25.7% (implying a WARF of 4285),
a weighted average recovery rate upon default of 48.54 %,
a diversity score of 14 and a weighted average spread of 3.42%
(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.
A material proportion of the collateral pool includes debt obligations
whose credit quality Moody's assesses through credit estimates.
Moody's analysis reflects adjustments with respect to the default probabilities
associated with credit estimates. Specifically, Moody's assumed
an equivalent of Caa3 for assets with credit estimates that have not been
updated within the last 15 months, which represent approximately
20.87% of the collateral pool.
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 credit rating action on the support provider and in relation to
each particular credit 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 credit rating action,
and whose ratings may change as a result of this credit 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.
Wenjie Zhang
Associate Lead Analyst
Structured Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
David Ham
VP - Senior Credit Officer
Structured Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
