USD $71 million of debt securities affected
New York, August 24, 2010 -- Moody's Investors Service announced today that it has upgraded the rating
of the following notes issued by Veer Cash Flow CLO Limited:
U.S.$105,000,000 Senior Rated Notes Due
2017 (current outstanding balance of $71,128,715),
Upgraded to Aa2 (sf); previously on September 1, 2009 Downgraded
to Aa3 (sf).
According to Moody's, the rating action results primarily from the
delevering of the Senior Rated Notes, which have been paid down
by approximately 25% or $23.8 million since the last
rating action in September 2009. As a result of the delevering,
the overcollateralization ratio relating to the Senior Rated Notes has
increased to 140.56% based on the latest trustee report
dated August 5, 2010, versus the July 2009 level of 128.17%.
Moody's also notes that the credit profile of the underlying portfolio
has been relatively stable since the last rating action. Based
on the August 2010 trustee report, the weighted average rating factor
is 3264 compared to 3308 in July 2009, and securities rated Caa1
and below make up approximately 11.1% of the underlying
portfolio versus 12.2% in July 2009.
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 $96.2
million, defaulted par of $10.4 million, weighted
average default probability of 27.78% (implying a WARF of
4228), a weighted average recovery rate upon default of 42.04%,
and a diversity score of 60. 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.
Veer Cash Flow CLO Limited, issued in April 2008, is a collateralized
loan obligation backed primarily by a portfolio of senior secured loans.
The principal methodology used in rating Veer Cash Flow CLO Limited was
the "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
Moody's modeled the transaction using the Binomial Expansion Technique.
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% (3382)
Senior Rated Notes: +1
Mezzanine Deferrable Notes: +2
Moody's Adjusted WARF + 20% (5074)
Senior Rated Notes: -2
Mezzanine Deferrable Notes: -2
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% (44.04%)
Senior Rated Notes: 0
Mezzanine Deferrable Notes: 0
Moody's Adjusted WARR - 2% (40.04%)
Senior Rated Notes: -1
Mezzanine Deferrable Notes: -1
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, 2)
divergence in legal interpretation of CDO documentation by different transactional
parties due to embedded ambiguities, and 3) potential additional
expected loss associated with swap agreements in CDOs as a result of recent
U.S. bankruptcy court ruling on Lehman swap termination
in the Dante case.
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 deals' overcollateralization levels.
Further, the timing of recoveries and the manager's decision
to work out versus selling defaulted assets create additional uncertainties.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, public information, 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 Investors Service adopts all necessary measures so that the information
it uses in assigning a credit rating is of sufficient quality and from
reliable sources; however, Moody's Investors Service does not
and cannot in every instance independently verify, audit 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.
Vice President - Senior Analyst
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 Veer Cash Flow CLO Limited
250 Greenwich Street
New York, NY 10007