New York, September 29, 2017 -- Moody's Investors Service has upgraded the ratings on notes issued by
Mercury CDO 2004-1, Ltd.:
U.S.$299,900,000 Class A-1NV First
Priority Senior Secured Non-Voting Floating Rate Notes (current
outstanding balance of $22,460,634.08),
Upgraded to B1 (sf); previously on October 5, 2016 Upgraded
to B3 (sf)
U.S.$100,000 Class A-1VA First Priority
Senior Secured Voting Floating Rate Notes (current outstanding balance
of $7487.78), Upgraded to B1 (sf); previously
on October 5, 2016 Upgraded to B3 (sf)
U.S.$330,000,000 Class A-1VB First
Priority Senior Secured Voting Floating Rate Notes (current outstanding
balance of $24,714,934.86), Upgraded to
B1 (sf); previously on October 5, 2016 Upgraded to B3 (sf)
Mercury CDO 2004-1, Ltd. is a collateralized debt
obligation issuance backed primarily by a portfolio of Residential Mortgage-Backed
Securities (RMBS) and CDOs originated from 2002-2005.
RATINGS RATIONALE
These rating actions are due primarily to the deleveraging of the senior
notes and an increase in the transaction's over-collateralization
(OC) ratios since October 2016. The Class A-1 notes have
paid down collectively by approximately 28.5%, or
$18.8 million, since that time. Based on Moody's
calculation, the OC ratio of the Class A-1 notes is currently
181.1 %, versus 153.6% in October 2016.
The paydown of the Class A-1 notes is partially the result of cash
collections from certain assets treated as defaulted by the trustee in
amounts materially exceeding expectations.
The deal has also benefited from an improvement in the credit quality
of the underlying portfolio since October 2016. Based on Moody's
calculation, the weighted average rating factor (WARF) is currently
1716, compared to 2011 in October 2016.
Methodology Underlying the Rating Action:
The principal methodology used in these ratings was "Moody's Approach
to Rating SF CDOs," published in June 2017. Please see the
Rating Methodologies page on www.moodys.com for a copy of
this methodology.
Loss and Cash Flow Analysis:
Moody's applies a Monte Carlo simulation framework in Moody's CDOROM™
to model the loss distribution for SF CDOs. The simulated defaults
and recoveries for each of the Monte Carlo scenarios define the reference
pool's loss distribution. Moody's then uses the loss distribution
as an input in the CDOEdge™ cash flow model.
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. 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):
Caa1 and below ratings notched up by two rating notches (1569):
Class A-1NV: +1
Class A-1VA: +1
Class A-1VB: +1
Class A-2A:0
Class A-2B:0
Class B:0
Class C:0
Caa1 and below ratings notched down by two notches (1864):
Class A-1NV: 0
Class A-1VA: 0
Class A-1VB: 0
Class A-2A: 0
Class A-2B: 0
Class B: 0
Class C: 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 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.
Aniket Deshpande
Asst Vice President - 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