USD $253 million of debt securities affected
New York, December 21, 2010 -- Moody's Investors Service announced today that it has upgraded the ratings
of the following notes issued by Atrium CDO:
U.S.$243,000,000 Class A Floating Rate
Notes Due 2015 (current balance of 205,578,596), Upgraded
to Aa1 (sf); previously on August 13, 2009 Downgraded to Aa3
(sf);
U.S.$10,000,000 Class B-1 Fixed
Rate Notes Due 2015, Upgraded to Baa1 (sf); previously on August
13, 2009 Confirmed at Ba1 (sf);
U.S.$15,000,000 Class B-2 Floating
Rate Notes Due 2015, Upgraded to Baa1 (sf); previously on August
13, 2009 Confirmed at Ba1 (sf);
U.S.$3,000,000 Class C-1 Fixed
Rate Notes Due 2015, Upgraded to Ba2 (sf); previously on August
13, 2009 Downgrade to B2 (sf);
U.S.$11,500,000 Class C-2 Floating
Rate Notes Due 2015, Upgraded to Ba2 (sf); previously on August
13, 2009 Downgraded to B2 (sf);
U.S.$5,000,000 Class D-1 Fixed
Rate Notes Due 2015, Upgraded to Caa2 (sf); previously on November
23, 2010 Ca (sf) Placed Under Review for Possible Upgrade;
U.S.$2,500,000 Class D-2 Floating
Rate Notes Due 2015, Upgraded to Caa2 (sf); previously on November
23, 2010 Ca (sf) Placed Under Review for Possible Upgrade.
RATINGS RATIONALE
According to Moody's, the rating action taken on the notes results
primarily from improvement in the credit quality of the underlying portfolio
since the last rating action in August 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 November 2010 trustee report, the weighted average
rating factor is 2550 compared to 2715 in July 2009, and securities
rated Caa1 and below make up approximately 10% of the underlying
portfolio versus 14% in July 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 $9.9 million from approximately
$31.1 million in July 2009.
The overcollateralization ratios of the rated notes have improved as a
result of delevering of the Class A Notes, which have been paid
down by approximately 10% or $25 million since the last
rating action in August 2009. As of the latest trustee report dated
November 2010, the Class A, Class B, Class C,
and Class D overcollateralization ratios are reported at 129.03%,
115.04%, 108.24%, and 105.02%,
respectively, versus July 2009 levels of 127.34, 114.89%,
108.73%, and 105.79%, respectively.
Moody's expects delevering to continue as a result of the end of the deal's
reinvestment period in July 2007.
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 $274 million,
defaulted par of $10.1 million, weighted average default
probability of 20.84% (implying a WARF of 3420), a
weighted average recovery rate upon default of 42.1%,
and a diversity score of 64. 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.
Atrium CDO, issued on June 27, 2002, is a collateralized
loan obligation backed primarily by a portfolio of senior secured loans.
The principal methodology used in these ratings 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 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 loss), assuming
that all other factors are held equal:
Moody's Adjusted WARF - 20% (2736)
Class A: +1
Class B1: +2
Class B2: +2
Class C1: +2
Class C2: +2
Class D1: +3
Class D2: +3
Moody's Adjusted WARF + 20% (4104)
Class A: -2
Class B1: -2
Class B2: -2
Class C1: -2
Class C2: -2
Class D1: -3
Class D2: -3
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 loss), assuming that all other factors are held
equal:
Moody's Adjusted WARR + 2% (44.1%)
Class A: 0
Class B1: +1
Class B2: 0
Class C1: 0
Class C2: 0
Class D1: +1
Class D2: +1
Moody's Adjusted WARR - 2% (40.1%)
Class A: -1
Class B1: 0
Class B2: -1
Class C1: -1
Class C2: -1
Class D1: -1
Class D2: -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 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) 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 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.
2) 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.
3) Other collateral quality metrics: The deal is allowed to reinvest
with unscheduled principal proceeds and sales proceeds from credit risk
obligations. In its analysis, Moody's considered the
manager's ability to deteriorate the collateral quality metrics'
existing cushions against the covenant levels.
4) 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
Shan Lai
Associate Analyst
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Ramon O. Torres
Senior Vice President
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 ratings of CLO notes issued by Atrium CDO
