Moody's also affirms the ratings on $652.0 million of notes
New York, October 11, 2018 -- Moody's Investors Service has upgraded the ratings on the following notes
issued by Symphony CLO XIV, Ltd.:
U.S.$25,000,000 Class C-1-R
Deferrable Mezzanine Floating Rate Notes Due July 14, 2026,
Upgraded to A1 (sf); previously on January 17, 2017 Assigned
A2 (sf)
U.S.$15,000,000 Class C-2-R
Deferrable Mezzanine Fixed Rate Notes Due July 14, 2026, Upgraded
to A1 (sf); previously on January 17, 2017 Assigned A2 (sf)
U.S.$26,000,000 Class D-1 Deferrable
Mezzanine Floating Rate Notes Due July 14, 2026, Upgraded
to Baa2 (sf); previously on May 29, 2014 Definitive Rating
Assigned Baa3 (sf)
U.S.$26,000,000 Class D-2 Deferrable
Mezzanine Floating Rate Notes Due July 14, 2026, Upgraded
to Baa2 (sf); previously on May 29, 2014 Definitive Rating
Assigned Baa3 (sf)
Moody's also downgraded the rating on the following notes:
U.S.$16,000,000 Class F Deferrable Mezzanine
Floating Rate Notes Due July 14, 2026, Downgraded to Caa1
(sf); previously on May 29, 2014 Definitive Rating Assigned
B3 (sf)
In addition, Moody's affirmed the ratings on the following
notes:
U.S.$250,000,000 Class A-1-R
Senior Floating Rate Notes Due July 14, 2026, Affirmed Aaa
(sf); previously on January 17, 2017 Assigned Aaa (sf)
U.S.$236,000,000 Class A-2-R
Senior Floating Rate Notes Due July 14, 2026, Affirmed Aaa
(sf); previously on January 17, 2017 Assigned Aaa (sf)
U.S.$10,000,000 Class A-3-R
Senior Fixed Rate Notes Due July 14, 2026, Affirmed Aaa (sf);
previously on January 17, 2017 Assigned Aaa (sf)
U.S.$73,000,000 Class B-1-R
Senior Floating Rate Notes Due July 14, 2026, Affirmed Aa1
(sf); previously on January 17, 2017 Assigned Aa1 (sf)
U.S.$35,000,000 Class B-2-R
Senior Fixed Rate Notes Due July 14, 2026, Affirmed Aa1 (sf);
previously on January 17, 2017 Assigned Aa1 (sf)
U.S.$48,000,000 Class E Deferrable Mezzanine
Floating Rate Notes Due July 14, 2026, Affirmed Ba3 (sf);
previously on May 29, 2014 Definitive Rating Assigned Ba3 (sf)
Symphony CLO XIV, Ltd., issued in May 2014, is
a collateralized loan obligation (CLO) backed primarily by a portfolio
of senior secured loans. The transaction's reinvestment period
ended in July 2018.
RATINGS RATIONALE
The upgrade and affirmation actions reflect the end of the deal's reinvestment
period in July 2018, and the expectation that deleveraging will
commence shortly. On the other hand, the downgrade rating
action on the Class F notes primarily reflects the specific risks to the
junior notes posed by spread compression and par loss observed in the
underlying CLO portfolio. Based on the trustee's September 2018
report, the weighted average spread (WAS) of the portfolio is reported
at 3.11%, versus 3.45% in September
2017. Additionally, based on Moody's calculation, the
total collateral par balance, including expected recoveries on current
defaults, is $795 million which is $5 million less
than the $800 million initial par amount targeted during the deal's
ramp-up.
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 $790.1 million,
defaulted par of $10.0 million, a weighted average
default probability of 20.80% (implying a WARF of 2810),
a weighted average recovery rate upon default of 48.47%,
a diversity score of 67 and a weighted average spread of 3.15%
(before accounting for LIBOR floors).
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 uncertainty
about credit conditions in the general economy.
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 could result in volatility in the deal's overcollateralization
levels. Further, the timing of recovery realization and whether
the Manager decides to work out or sell defaulted assets create additional
uncertainty. Realization of recoveries that are either materially
higher or lower than assumed in Moody's analysis would impact the
CLO positively or negatively, respectively.
6) Post-Reinvestment Period Trading: Subject to certain requirements,
the deal can reinvest certain proceeds after the end of the reinvestment
period, and as such the manager has the ability to erode some of
the collateral quality metrics to the covenant levels. Such reinvestment
could affect the transaction either positively or negatively. In
particular, Moody's tested for a possible extension of the
actual weighted average life in its analysis given that the post-reinvestment
period reinvesting criteria has loose restrictions on the weighted average
life of the portfolio.
7) Weighted Average Spread (WAS): CLO performance can be sensitive
to WAS, which is a key factor driving the amount of excess spread
available as credit enhancement when a deal fails its over-collateralization
or interest coverage tests. A decrease in excess spread,
including as a result of losing the net interest benefit of LIBOR floors,
or because market conditions make it difficult for the deal to source
assets of appropriate credit quality in order to maintain its WAS target,
would reduce the effective credit enhancement available for the notes.
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.
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 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.
Monica Chau
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