USD $6.9 million of debt securities affected
New York, October 13, 2010 -- Moody's Investors Service announced today that it has upgraded the rating
of the following notes issued by Mt. Wilson CLO, Ltd.:
U.S.$6,900,000 Class E Floating Rate
Deferrable Interest Notes Due 2018, Upgraded to Caa3 (sf);
previously on July 13, 2009 Downgraded to Ca (sf).
According to Moody's, the rating action taken on the notes result
primarily from improvement in the credit quality of the underlying portfolio
and an increase in the overcollateralization ratios of the notes since
the last rating action in July 2009.
Improvement in the credit quality is observed through an improvement in
the average credit rating (as measured by the weighted average rating
factor) and a decrease in the proportion of securities from issuers rated
Caa1 and below. Based on the September 2010 trustee report,
the weighted average rating factor is 2536 compared to 2828 in June 2009,
and securities rated Caa1 and below make up approximately 6.3%
of the underlying portfolio versus 14.4% in June 2009.
Moody's adjusted WARF has also declined since the last rating action due
to a decrease in the percentage of securities with ratings on "Review
for Possible Downgrade" or with a "Negative Outlook." The deal
also experienced a decrease in defaults. In particular, the
dollar amount of defaulted securities has decreased to $8.4
million from approximately $23 million in June 2009.
The overcollateralization ratios of the rated notes have also increased
since the last rating action as a result of paydowns of senior notes due
to overcollateralization ratio failures and higher than expected recoveries
on defaulted securities. The Class A/B, Class C, Class
D and Class E overcollateralization ratios are reported at 124.34%,
113.42%, 106.3%, and 103.65%,
respectively, versus June 2009 levels of 116.57%,
106.48%, 99.86%, and 97.32%,
respectively, and all related overcollateralization tests are currently
in compliance. Moody's also notes that the Class D and E Notes
are no longer deferring interest and that all previously deferred interest
has been paid in full.
Furthermore, the Class E Notes also benefit from a structural feature
in the deal whereby during the amortization period, the failure
of the Interest Diversion Ratio to be equal to or greater than 103.69%
results in the diversion of excess interest to delever first the Class
E notes, followed by Class D Notes, Class C Notes, Class
B Notes, and Class A Notes.
Due to the impact of revised and updated key assumptions referenced in
"Moody's Approach to Rating Collateralized Loan Obligations" and "Annual
Sector Review (2009): Global CLOs," key model inputs used
by Moody's in its analysis, such as par, weighted average
rating factor, diversity score, and weighted average recovery
rate, may be different from the trustee's reported numbers.
In its base case, Moody's analyzed the underlying collateral pool
to have a performing par and principal proceeds of $281.6
million, defaulted par of $10.5 million, weighted
average default probability of 29.7% (implying a WARF of
3760), a weighted average recovery rate upon default of 43.75%,
and a diversity score of 54. These default and recovery properties
of the collateral pool are incorporated in cash flow model analysis where
they are subject to stresses as a function of the target rating of each
CLO liability being reviewed. The default probability is derived
from the credit quality of the collateral pool and Moody's expectation
of the remaining life of the collateral pool. The average recovery
rate to be realized on future defaults is based primarily on the seniority
of the assets in the collateral pool. In each case, historical
and market performance trends, and collateral manager latitude for
trading the collateral are also factors.
Mt. Wilson CLO, Ltd., issued in May 31,
2006, is a collateralized loan obligation backed primarily by a
portfolio of senior secured loans.
The principal methodology used in rating Mt. Wilson CLO,
Ltd. was "Moody's Approach to Rating Collateralized Loan Obligations"
rating methodology published in August 2009. Other methodologies
and factors that may have been considered in the process of rating this
issuer can also be found on Moody's website.
Moody's Investors Service did not receive or take into account a third
party due diligence report on the underlying assets or financial instruments
related to the monitoring of this transaction in the past 6 months.
Moody's modeled the transaction using the Binomial Expansion Technique,
as described in Section 22.214.171.124 of the "Moody's Approach
to Rating Collateralized Loan Obligations" rating methodology published
in August 2009.
In addition to the base case analysis described above, Moody's also
performed a number of sensitivity analyses to test the impact on all rated
notes, including the following:
1. Various default probabilities to capture potential defaults
in the underlying portfolio.
2. A range of recovery rate assumptions for all assets to capture
variability in recovery rates.
Below is a summary of the impact of different default probabilities (expressed
in terms of WARF levels) on all rated notes (shown in terms of the number
of notches' difference versus the current model output, where a
positive difference corresponds to lower expected losses), assuming
that all other factors are held equal:
Moody's Adjusted WARF - 20% (2800)
Class A: +2
Class B: +2
Class C: +1
Class D: +2
Class E: +4
Moody's Adjusted WARF + 20% (4200)
Class A: -1
Class B: -2
Class C: -2
Class D: -3
Class E: -1
Below is a summary of the impact of different recovery rate levels on
all rated notes (shown in terms of the number of notches' difference versus
the current model output, where a positive difference corresponds
to lower expected losses), assuming that all other factors are held
Moody's Adjusted WARR + 2% (45.75%)
Class A: +1
Class B: 0
Class C: 0
Class D: +1
Class E: +1
Moody's Adjusted WARR - 2% (41.75%)
Class A: 0
Class B: -1
Class C: -1
Class D: -1
Class E: 0
Moody's notes that this transaction is subject to a high level of macroeconomic
uncertainty, as evidenced by 1) uncertainties of credit conditions
in the general economy and 2) the large concentration of speculative-grade
debt maturing between 2012 and 2014 which may create challenges for issuers
to refinance. CDO notes' performance may also be impacted by 1)
the managers' investment strategies and behavior, and 2) divergence
in legal interpretation of CDO documentation by different transactional
parties due to embedded ambiguities.
Sources of additional performance uncertainties are described below:
1) Weighted average life: The notes' ratings are sensitive to the
weighted average life assumption of the portfolio, which may be
extended due to the manager's decision to reinvest into new issue loans
or other loans with longer maturities and/or participate in amend-to-extend
offerings. Moody's tested for a possible extension of the actual
weighted average life in its analysis.
2) Recovery of defaulted assets: Market value fluctuations in defaulted
assets reported by the trustee and those assumed to be defaulted by Moody's
may create volatility in the deals' overcollateralization levels.
Further, the timing of recoveries and the manager's decision
to work out versus selling defaulted assets create additional uncertainties.
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.
3) Other collateral quality metrics: The deal is allowed to reinvest
and the manager has the ability to deteriorate the collateral quality
metrics' existing cushions against the covenant levels. Moody's
analyzed the impact of assuming lower of reported and covenanted values
for weighted average rating factor, weighted average coupon,
and diversity score. With respect to the weighted average spread,
we analyzed the impact assuming a mid-point between the reported
and the covenanted value to give some credit to the deal's higher weighted
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, public information, and confidential
and proprietary Moody's Investors Service information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
Further information on Moody's analysis of this transaction is available
on www.moodys.com. In addition, Moody's publishes
a weekly summary of structured finance credit, ratings and methodologies,
available to all registered users of our web site, at www.moodys.com/SFQuickCheck.
MOODY'S adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
MOODY'S considers to be reliable including, when appropriate,
independent third-party sources. However, MOODY'S
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Structured Finance Group
Moody's Investors Service
Ramon O. Torres
Senior Vice President
Structured Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's upgrades the rating of notes issued by Mt. Wilson CLO, Ltd.
250 Greenwich Street
New York, NY 10007