USD $32.5 million of debt securities affected
New York, April 19, 2011 -- Moody's Investors Service announced today that it has upgraded the rating
of the following notes issued by Suffield CLO, Limited:
U.S. $42,000,000 Class III-A Mezzanine
Floating Rate Notes (current outstanding balance of $32,536,247),
Upgraded to Aaa (sf); previously on October 14, 2010 Upgraded
to Aa2 (sf).
RATINGS RATIONALE
According to Moody's, the rating action taken on the notes results
primarily from the delevering of the Class II and Class III Notes,
which have been paid down by approximately $24.9 million
since the rating action in October 2010. As a result of the delevering,
the overcollateralization ratios have increased since the rating action
in October 2010. As of the latest trustee report dated March 21,
2011, the Class III/IV overcollateralization ratio is reported at
113.3%, versus September 2010 level of 109.8%.
Moody's also notes that the credit profile of the underlying portfolio
has been relatively stable since the last rating action. Based
on the March 2011 trustee report, the weighted average rating factor
is 2911 compared to 2872 in September 2010, and securities rated
Caa1 and below make up approximately 14.9% of the underlying
portfolio versus 12.1% in September 2010. The deal
experienced a decrease in defaults. In particular, the dollar
amount of defaulted securities has decreased to about $2.6
million from approximately $6.6 million in September 2010.
While the transaction has benefited from delevering, Moody's notes
that the portfolio includes a number of investments in securities that
mature after the maturity date of the notes. Based on the trustee
report dated March 21, 2011, securities that mature after
the maturity date of the notes make up approximately 17% of the
underlying portfolio. These investments potentially expose the
notes to market risk in the event of liquidation at the time of the notes'
maturity.
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 balance
of $92.4 million, defaulted par of $2.9
million, a weighted average default probability of 20.19%
(implying a WARF of 3843), a weighted average recovery rate upon
default of 42.98%, and a diversity score of 31.
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.
Suffield CLO, Limited, issued in September 2000, is
a collateralized loan obligation backed primarily by a portfolio of senior
secured loans.
The principal methodology used in this rating was "Moody's Approach to
Rating Collateralized Loan Obligations" published in August 2009.
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
six months.
Moody's modeled the transaction using the Binomial Expansion Technique,
as described in Section 2.3.2.1 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 sensitivity analyses to test the impact on all rated notes of
various default probabilities. 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 loss), assuming that all other factors are held
equal:
Moody's Adjusted WARF -- 20% (3074)
Class III-A: 0
Moody's Adjusted WARF + 20% (4612)
Class III-A: 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 manager's investment strategy 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. Delevering: The main source of uncertainty in this transaction
is whether delevering from unscheduled principal proceeds will continue
and at what pace. Delevering may accelerate due to high prepayment
levels in the loan market and/or collateral sales by the manager,
which may have significant impact on the notes' ratings.
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 deal's overcollateralization
levels. Further, the timing of recoveries and the manager's
decision to work out versus sell 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. Long-dated assets: The presence of assets that
mature beyond the CLO's legal maturity date exposes the deal to
liquidation risk on those assets. Moody's assumes an asset's
terminal value upon liquidation at maturity to be equal to the lower of
an assumed liquidation value (depending on the extent to which the asset's
maturity lags that of the liabilities) and the asset's current market
value.
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.
REGULATORY DISCLOSURES
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.
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.
New York
Connie Li
Associate Analyst
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Yu Sun
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's upgrades the rating of notes issued by Suffield CLO, Limited
