Moody's also affirms the ratings of $387.8 million of notes
New York, February 27, 2013 -- Moody's Investors Service announced today that it has upgraded the ratings
of the following notes issued by Carlyle High Yield Partners VIII,
Ltd.:
U.S.$19,000,000 Class A-2-B
Senior Secured Floating Rate Notes Due 2021, Upgraded to Aaa (sf);
previously on September 7, 2011 Upgraded to Aa1 (sf)
U.S.$34,000,000 Class B Senior Secured
Floating Rate Notes Due 2021, Upgraded to Aa3 (sf); previously
on September 7, 2011 Upgraded to A1 (sf)
U.S.$34,250,000 Class D Deferrable Floating
Rate Notes Due 2021 (current outstanding balance of $28,492,924.04),
Upgraded to Ba1 (sf); previously on September 7, 2011 Upgraded
to Ba2 (sf)
Moody's also affirmed the ratings of the following notes:
U.S. $189,000,000 Class A-1 Senior
Secured Floating Rate Notes Due 2021, Affirmed Aaa (sf); previously
on September 7, 2011 Upgraded to Aaa (sf)
U.S.$170,000,000 Class A-2-A
Senior Secured Floating Rate Notes Due 2021, Affirmed Aaa (sf);
previously on May 31, 2006 Assigned Aaa (sf)
U.S.$28,750,000 Class C Senior Secured
Floating Rate Notes Due 2021, Affirmed Baa2 (sf); previously
on September 7, 2011 Upgraded to Baa2 (sf)
RATINGS RATIONALE
According to Moody's, the rating actions taken on the notes reflect
the benefit of the short period of time remaining before the end of the
deal's reinvestment period in May 2013. In consideration of the
reinvestment restrictions applicable during the amortization period,
and therefore 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 higher spread and diversity levels
compared to the levels assumed at the last rating action in September
2011. Moody's modeled a WAS of 3.84% and diversity
of 75 compared to 2.96% and 60 at the time of the last rating
action.
Due to the impact of revised and updated key assumptions referenced in
"Moody's Approach to Rating Collateralized Loan Obligations" published
in June 2011, 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 $498.0 million, defaulted par
of $9.4 million, a weighted average default probability
of 21.43% (implying a WARF of 2753), a weighted average
recovery rate upon default of 50.08%, and a diversity
score of 75. The 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.
Carlyle High Yield Partners VIII, Ltd., issued in May
2006, 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 June 2011.
Please see the Credit Policy page on www.moodys.com for
a copy of this methodology.
Moody's modeled the transaction using a cash flow model based on
the Binomial Expansion Technique, as described in Section 2.3
of the "Moody's Approach to Rating Collateralized Loan Obligations"
rating methodology published in June 2011.
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% (2202)
Class A-1: 0
Class A-2-A: 0
Class A-2-B: 0
Class B: +2
Class C: +3
Class D: +1
Moody's Adjusted WARF + 20% (3304)
Class A-1: 0
Class A-2-A: 0
Class A-2-B: -1
Class B: -2
Class C: -1
Class D: -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 upcoming
speculative-grade debt maturities which may create challenges for
issuers to refinance. CLO notes' performance may also be
impacted by 1) the manager's investment strategy and behavior and
2) divergence in legal interpretation of CLO documentation by different
transactional parties due to embedded ambiguities.
Sources of additional performance uncertainties are described below:
1) Deleveraging: The main source of uncertainty in this transaction
is whether deleveraging from unscheduled principal proceeds will commence
and at what pace. Deleveraging may accelerate due to high prepayment
levels in the loan market and 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.
Further information on Moody's analysis of this transaction is available
on www.moodys.com.
REGULATORY DISCLOSURES
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.
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.
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.
Andrew Worthington
Analyst
Structured Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Min Xu
Vice President - Senior Analyst
Structured Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's upgrades the ratings of $81.5 million of CLO notes issued by Carlyle High Yield Partners VIII, Ltd.
