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Rating Action:

Moody's upgrades ratings on $69.5 million of CLO notes issued by Greens Creek Funding Ltd.

Global Credit Research - 17 Jan 2014

Moody's also affirms the ratings on $309.5 million of notes

New York, January 17, 2014 -- Moody's Investors Service has upgraded the ratings on the following notes issued by Greens Creek Funding Ltd.:

U.S. $25,500,000 Class A-2 Floating Rate Senior Notes Due 2021, Upgraded to Aa1 (sf); previously on December 21, 2011 Upgraded to Aa2 (sf)

U.S. $26,000,000 Class B Floating Rate Deferrable Senior Subordinate Notes Due 2021, Upgraded to A2 (sf); previously on December 21, 2011 Upgraded to A3 (sf)

U.S. $18,000,000 Class C Floating Rate Deferrable Senior Subordinate Notes Due 2021, Upgraded to Baa2 (sf); previously on December 21, 2011 Upgraded to Baa3 (sf)

Moody's also affirmed the ratings on the following notes:

U.S. $342,000,000 Class A-1 Floating Rate Senior Notes Due 2021 (current outstanding balance of $302,913,767.41), Affirmed Aaa (sf); previously on September 23, 2011 Upgraded to Aaa (sf)

U.S. $8,000,000 Class D Floating Rate Deferrable Subordinate Notes Due 2021 (current outstanding balance of $6,570,850.55), Affirmed Ba2 (sf); previously on September 23, 2011 Upgraded to Ba2 (sf)

Greens Creek Funding, Ltd. issued in May 2007, is a collateralized loan obligation (CLO) backed primarily by a portfolio of senior secured loans. The portfolio is managed by Silvermine Capital Management LLC. The transaction's reinvestment period will end in July 2014.

RATINGS RATIONALE

These rating actions reflect the benefit of the short period of time remaining before the end of the deal's reinvestment period in July 2014. In light of the reinvestment restrictions during the amortization period, and therefore the limited ability of the manager to effect significant changes to the current collateral pool, Moody's analyzed the deal assuming a higher likelihood that the collateral pool characteristics will maintain a positive buffer relative to certain covenant requirements. In particular, Moody's assumed that the deal will benefit from lower WARF compared to the covenant level. Moody's modeled a WARF of 2392 compared to the covenant level of 2570. Furthermore, the transaction's reported OC ratios have been stable since January 2013.

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 November 2013. 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 commence 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.

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):

Moody's Adjusted WARF -- 20% (1913)

Class A-1: 0

Class A-2: 0

Class B: +3

Class C: +3

Class D: +3

Moody's Adjusted WARF + 20% (2870)

Class A-1: 0

Class A-2: -2

Class B: -2

Class C: -1

Class D: -1

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 November 2013.

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 $422.0 million, defaulted par of $3.1 million, a weighted average default probability of 15.68% (implying a WARF of 2392), a weighted average recovery rate upon default of 50.58 %, a diversity score of 46 and a weighted average spread of 2.86%.

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. 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 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.

The analysis relies on an assessment of collateral characteristics to determine the collateral loss distribution, that is, the function that correlates to an assumption about the likelihood of occurrence to each level of possible losses in the collateral. As a second step, Moody's evaluates each possible collateral loss scenario using a model that replicates the relevant structural features to derive payments and therefore the ultimate potential losses for each rated instrument. The loss a rated instrument incurs in each collateral loss scenario, weighted by assumptions about the likelihood of events in that scenario occurring, results in the expected loss of the rated instrument.

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.

Svetlana V Zaitseva
Associate 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

David Ham
VP - Senior Credit Officer
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 ratings on $69.5 million of CLO notes issued by Greens Creek Funding Ltd.
No Related Data.

 

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