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08 Oct 2010
EUR 76 million of debt securities affected
London, 08 October 2010 -- Moody's Investors Service announced today that it has upgraded the rating
of the Class I-B notes and withdrawn the rating of Class Q combination
notes issued by Eurocredit CDO II B.V.:
EUR 76M Class I-B Senior Notes, Upgraded to A3 (sf);
previously on 21 Dec, 2009 Downgraded to Baa2 (sf)
EUR 25M Class Q Combination Notes, Withdrawn (sf); previously
on 21 Dec,2009 Downgraded to Baa3 (sf)
Eurocredit CDO II B.V., issued in October 2000,
is a single currency collateralised loan obligation backed by a portfolio
of European high yield bonds and senior secured loans. The transaction
is managed by Intermediate Capital Managers Limited but the reinvestment
period ended in October 2005 and the underlying portfolio is currently
in amortisation phase. As a result the senior I-A tranches
have been repaid by 51 %.
According to Moody's, the upgrade rating action taken on the
notes reflects both the improvement in the credit quality and the amortisation
of the portfolio. Credit quality improvement is observed through
a significant decrease in the proportion of securities from issuers rated
Caa1 and below (9.18% in August 2010, compared to
20.13% in November 2009). Amortisation of the portfolio
contributed to an increase in the senior par value test (131.13%
in August 2010, compared to 128.94% in November 2009).
These measures were taken from the trustee reports dated 31 August 2010
and 30 November 2009.
The credit rating on the Class Q combination notes has been withdrawn
as the rated balance of the Class Q Combination Notes (Euro 25 million
at closing) has been fully repaid since inception of the transaction through
interest and principal payments received from the underlying combination
The ratings of the other classes of rated notes, including the Class
Q combination notes whose rated balance has been reduced to Euro7.5million,
are not impacted by the performance evolution described above.
In its base case, Moody's analyzed the underlying collateral pool
with an adjusted weighted average rating factor of 3082, and a weighted
average recovery rate of 39.32%. Standard correlation
assumptions applicable to corporate assets in the CDOROM2.7TM model
have been used. Moody's notes there are 4 assets (9%
of the portfolio) whose weighted average life is longer than the final
maturity of the transaction. For these long dated assets,
Moody's assumed a conservative liquidation value of 30%.
Moody's ran sensitivity analyses on key parameters for the rated notes.
Among these, absolute changes of 15% in the liquidation value
of the long dated assets would impact the model outputs for the Class
I-B notes by 1 notch. For all rated notes, changing
the weighted average rating factor ("WARF") of the portfolio
by 200 upwards or downwards would not impact the model results by more
than 2 notches.
The principal methodology used in rating Eurocredit II CDO B.V.
was "Moody's Approach to Rating Collateralized Loan Obligations" 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
Under this methodology, due to the deal's lack of granularity,
Moody's relies on a simulation based framework. Moody's therefore
used CDOROM2.7TM , to generate default and recovery scenarios
for each asset in the portfolio and then, Moody's EMEA Cash-Flow
model in order to compute the associated loss to each tranche in the structure.
The description of this model can be found in the methodology listed above
Moody's also supplemented its analysis with the typical Binomial
Expansion Technique, whereby the pool is represented by independent
identical assets, the number of which being determined by the diversity
score of the portfolio. The default and recovery properties of
the collateral pool are incorporated in the Moody's EMEA Cash-Flow
model where the default probabilities are subject to stresses as a function
of the target rating of each CLO liability being reviewed. The
default probability range 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 and jurisdiction of the assets in
the collateral pool.
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.
Moody's also notes that a material proportion of the collateral pool consists
of debt obligations whose credit quality has been assessed through Moody's
credit estimates. As credit estimates do not carry credit indicators
such as ratings reviews and outlooks, a stress of a quarter notch-equivalent
assumed downgrade was applied to each of these estimates. In addition,
large single exposure to obligors bearing a Credit Estimates have been
considered for the analysis and applied a stress applicable to concentrated
pools with non publicly rated issuers as per the report titled "Updated
Approach to the Usage of Credit Estimates in Rated Transactions" published
in October 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
The rating has been disclosed to the rated entity or its designated agents
and issued with no amendment resulting from that disclosure.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information and confidential and proprietary Moody's Investors
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 Investors Service may have provided Ancillary or Other Permissible
Service(s) to the rated entity or its related third parties within the
three years preceding the Credit Rating Action. Please see the
ratings disclosure page www.moodys.com/disclosures on our
website for further information.
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 Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
VP - Senior Credit Officer
Structured Finance Group
Moody's France SAS
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's Investors Service Ltd.
Moody's upgrades the rating of the Class I-B notes of Eurocredit CDO II B.V.
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London E14 5FA
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