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Rating Action:

Moody's upgrades ratings on CLO notes of Halcyon Structured Asset Management European Long Secured/Short Unsecured CLO 2008-I B.V.

20 Jan 2014

Approximately EUR318.9M of structured securities affected

Madrid, January 20, 2014 -- Moody's Investors Service has today upgraded the ratings of the following notes issued by Halcyon Structured Asset Management European Long Secured/Short Unsecured CLO 2008-I B.V.:

....EUR278M Class A Senior Secured Floating Rate Notes due 2023 (outstanding balance: EUR 260.9M), Upgraded to Aaa (sf); previously on Nov 7, 2011 Upgraded to Aa1 (sf)

....EUR10M Class B Deferrable Secured Floating Rate Notes due 2023, Upgraded to Aa1 (sf); previously on Nov 7, 2011 Upgraded to A2 (sf)

....EUR20M Class C Deferrable Secured Floating Rate Notes due 2023, Upgraded to A1 (sf); previously on Nov 7, 2011 Upgraded to Baa2 (sf)

....EUR17M Class D Deferrable Secured Floating Rate Notes due 2023, Upgraded to Baa2 (sf); previously on Nov 7, 2011 Upgraded to Ba1 (sf)

....EUR11M Class E Deferrable Secured Floating Rate Notes due 2023, Upgraded to Ba1 (sf); previously on Nov 7, 2011 Upgraded to B1 (sf)

RATINGS RATIONALE

According to Moody's, the rating actions taken on the notes result from the benefit of modeling actual credit metrics following the expiry of the reinvestment period in June 2013. In particular, prior to the end of the reinvestment period Moody's modeled the weighted average spread as the midpoint between the covenant and the actual level. The weighted average spread increased to 4.38% in November 2013, compared with 3.96% in November 2012 and 3.16% of the last rating action in November 2011 based on the trustee report as of October 2011.

In consideration of the reinvestment restrictions applicable during the amortization period, and therefore the limited ability to effect significant changes to the current collateral pool, Moody's analyzed the deal assuming a higher likelihood that the collateral pool characteristics will continue to maintain a positive buffer relative to certain covenant requirements. In particular, the deal is assumed to benefit from a shorter amortisation profile and higher spread levels compared to the levels assumed before the end of the reinvestment period in June 2013.

The key model inputs Moody's uses 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 analysed the underlying collateral pool as having a performing par and principal proceeds balance of EUR363.9 million (EUR4.9 million of non-Euro obligations hedged via perfect assets swaps), defaulted par of EUR11.5million, a weighted average default probability of 23.42% over 4.5 year WAL (consistent with a 10 year WARF of 3243), a weighted average recovery rate upon default of 49.10% for a Aaa liability target rating, a diversity score of 33 and a weighted average spread of 4.19% for variable paying assets and WAC of 6.82% for fixed paying.

In its base case, Moody's addresses the exposure to obligors domiciled in countries with local currency country risk bond ceilings (LCCs) of A1 or lower. Given that the portfolio has exposures to 10.83% of obligors in Ireland and Spain, whose LCC are A2 and A3, respectively, Moody's ran the model with different par amounts depending on the target rating of each class of notes, in accordance with Section 4.2.11 and Appendix 14 of the methodology. The portfolio haircuts are a function of the exposure to peripheral countries and the target ratings of the rated notes, and amount to 0.33% for the Class A notes, 0.21% for the Class B notes and, 0.08% for the Class C notes.

The default probability derives from the credit quality of the collateral pool and Moody's expectation of the remaining life of the collateral pool. The estimated average recovery rate on future defaults is based primarily on the seniority of the assets in the collateral pool. For a Aaa liability target rating, Moody's assumed that a recovery of 50% of the 97.44% of the portfolio exposed to first-lien senior secured corporate assets upon default and of 15% of the remaining non-first-lien loan corporate assets upon default. In each case, historical and market performance and a collateral manager's latitude to trade collateral are also relevant factors. Moody's incorporates these default and recovery characteristics of the collateral pool into its cash flow model analysis, subjecting them to stresses as a function of the target rating of each CLO liability it is analyzing.

Methodology Underlying 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

In addition to the base-case analysis, Moody's conducted sensitivity analyses on the key parameters for the rated notes, for which it assumed lower credit quality in the portfolio to address refinancing risk. Loans to European corporates rated B3 or lower and maturing between 2014 and 2015 make up approximately 4.5% of the portfolio, which could make refinancing difficult. Moody's ran a model in which it raised the base case WARF to 3311 by forcing ratings on 25% of the refinancing exposures to Ca; the model generated outputs that were within one notch of the base-case results.

This transaction is subject to a high level of macroeconomic uncertainty, which could negatively affect the ratings on the note, in light of 1) uncertainty about credit conditions in the general economy 2) the exposure to lowly- rated debt maturing between 2014 and 2015, which may create challenges for issuers to refinance. CLO notes' performance may also be impacted either positively or negatively by 1) the manager's investment strategy and behaviour and 2) divergence in the legal interpretation of CDO documentation by different transactional parties due to because of embedded ambiguities.

Additional uncertainty about performance is due to the following

1) Exposure to credit estimates: The deal contains a large number of securities whose default probabilities Moody's has assessed through credit estimates. If Moody's does not receive the necessary information to update the credit estimates in a timely fashion, the transaction could be affected by any default probability stresses Moody's assumes in lieu of updated credit estimates

2) Portfolio amortisation: The main source of uncertainty in this transaction is the pace of amortisation of the underlying portfolio, which can vary significantly depending on market conditions and have a significant impact on the notes' ratings. Amortisation could accelerate as a consequence of high loan prepayment levels or collateral sales by the collateral manager or be delayed by an increase in loan amend-and-extend restructurings. Fast amortisation would usually benefit the ratings of the notes beginning with the notes having the highest prepayment priority.

3) Recovery of defaulted assets: Market value fluctuations in trustee-reported defaulted assets and those Moody's assumes have defaulted can result in volatility in the deal's over-collateralisation levels. Further, the timing of recoveries and the manager's decision whether to work out or sell defaulted assets can also result in additional uncertainty. Moody's analysed defaulted recoveries assuming the lower of the market price or the recovery rate to account for potential volatility in market prices. Recoveries higher than Moody's expectations would have a positive impact on the notes' ratings.

In addition to the quantitative factors that Moody's explicitly modeled, qualitative factors are part of the rating committee's considerations. These qualitative factors include the structural protections in the transaction, its recent performance given the market environment, the legal environment, specific documentation features, the collateral manager's track record and the potential for selection bias in the portfolio. All information available to rating committees, including macroeconomic forecasts, input from other Moody's analytical groups, market factors, and judgments regarding the nature and severity of credit stress on the transactions, can influence the final rating decision.

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.

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.

Javier Hevia Portocarrero
Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid 28002
Spain
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Neelam S Desai
Senior Vice President/Manager
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid 28002
Spain
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's upgrades ratings on CLO notes of Halcyon Structured Asset Management European Long Secured/Short Unsecured CLO 2008-I B.V.
No Related Data.
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