New York, January 03, 2014 -- Moody's Investors Service has upgraded the rating on notes issued by C-Bass
CBO VII Ltd.:
U.S. $27,000,000 Class D Fourth Priority
Secured Floating Rate Deferrable Interest Notes Due 2038 (current outstanding
balance of $14,575,580.43), Upgraded to
Caa3 (sf); previously on May 9, 2013 Affirmed Ca (sf).
RATINGS RATIONALE
The rating action is due primarily to the deleveraging of the Class C
Notes and an increase in the transaction's over-collateralization
ratios since the last rating action in May 2013. The Class C Notes
have paid down by approximately 66.6%, or $9.1
million, since May 2013. Based on the trustee's November
2013 report, the over-collateralization ratio of the Class
C Notes and Class D Notes are 744.38% and 177.59%,
respectively, versus 355.51% and 149.67%,
respectively, in May 2013.
Methodology Underlying the Rating Action
The principal methodology used in this rating was "Moody's Approach to
Rating SF CDOs" published in May 2012. 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, as
described below:
Primary causes of uncertainty about assumptions are the extent of any
slowdown in growth in the current macroeconomic environment and in the
residential real estate property markets. The residential real
estate property market is subject to uncertainty about housing prices;
the pace of residential mortgage foreclosures, loan modifications
and refinancing; the unemployment rate; and interest rates.
Loss and Cash Flow Analysis
To model the loss distribution for SF CDOs, Moody's applies a Monte
Carlo simulation framework in Moody's CDOROM™ v2.10.15.
This framework generates defaults at the same frequency as that indicated
by the adjusted default probability (the default probability associated
with the current rating, multiplied by the Resecuritization Stress)
for each credit in the pool. Specifically, Moody's
simulates correlated defaults by applying a normal (or Gaussian) copula
model to the asset correlation framework. Applying the distributional
assumptions, including the correlation between recovery values,
generates recovery rates for defaulted credits. The simulated defaults
and recoveries for each of the Monte Carlo scenarios define the reference
pool's loss distribution.
Once Moody's has calculated the loss distribution, each collateral
loss scenario derived through CDOROM™ loss distribution is associated
with the interest and principal received by the rated liability classes
in the CDOEdge™ cash flow model. The cash flow model takes
into account collateral cash flows, the transaction covenants,
the priority of payments (waterfall) for interest and principal proceeds
received from portfolio assets, reinvestment assumptions,
the timing of defaults, interest-rate scenarios and any foreign
exchange risk. The expected loss for each tranche is equal to the
weighted average of losses to each tranche in all of the scenarios,
weighted by the likelihood of the scenario. Moody's defines expected
loss as the shortfall in the present value of cash flows to the tranche
relative to the present value of the promised cash flows. Moody's
calculates present values using the promised tranche coupon rate as the
discount rate. For floating rate tranches, the discount rate
is based on the promised spread over LIBOR and the assumed LIBOR scenario.
Today's rating action factors in a number of sensitivity analyses
and stress scenarios, discussed below. Below is a summary
of the impact on all of the rated notes in terms of the difference in
the number of notches versus the current model output, in which
a positive difference corresponds to a lower expected loss:
Caa rated assets notched up by 2 rating notches:
Class D: +1
Caa rated assets notched down by 2 rating notches:
Class D: 0
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 did not receive or take into account a third-party
assessment on the due diligence performed regarding the underlying assets
or financial instruments related to the monitoring of this transaction
in the past six months.
Moody's describes its loss and cash flow analysis in the section
"Ratings Rationale" of this press release.
As the section on loss and cash flow analysis describes, 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.
Oktay Veliev
Vice President - Senior 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
Ramon O Torres
Senior Vice President/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 USD 14.6 million of SF CDO notes issued by C-Bass CBO VII Ltd.