USD $169.8 million of debt securities affected
New York, June 07, 2011 -- Moody's Investors Service announced today that it has upgraded the ratings
of the following notes issued by Avery Point CLO, Limited:
U.S. $127,250,000 Class A-1 Senior
Secured Floating Rate Notes due 2015 (current outstanding balance of $60,563,864),
Upgraded to Aaa (sf); previously on August 31, 2010 Upgraded
to Aa1 (sf);
U.S. $25,000,000 Class A-3 Senior
Secured Deferrable Floating Rate Notes due 2015, Upgraded to Aaa
(sf); previously on August 31, 2010 Upgraded to Aa2 (sf);
U.S. $20,250,000 Class B Senior Secured
Floating Rate Notes due 2015, Upgraded to Aaa (sf); previously
on August 31, 2010 Upgraded to A1 (sf);
U.S. $22,000,000 Class C-1 Senior
Secured Deferrable Floating Rate Notes due 2015, Upgraded to Aa3
(sf); previously on August 31, 2010 Upgraded to Baa3 (sf);
U.S. $10,000,000 Class C-2 Senior
Secured Deferrable Fixed Rate Notes due 2015, Upgraded to Aa3 (sf);
previously on August 31, 2010 Upgraded to Baa3 (sf);
U.S. $20,000,000 Class D-1 Senior
Secured Deferrable Floating Rate Notes due 2015, Upgraded to Baa3
(sf); previously on August 31, 2010 Upgraded to B1 (sf);
U.S. $3,000,000 Class D-2 Senior
Secured Deferrable Fixed Rate Notes due 2015, Upgraded to Baa3(sf);
previously on August 31, 2010 Upgraded to B1 (sf);
U.S. $9,000,000 Class E Senior Secured
Deferrable Fixed Rate Notes due 2015, Upgraded to Ba2(sf);
previously on August 31, 2010 Upgraded to Caa2 (sf).
RATINGS RATIONALE
According to Moody's, the rating actions taken on the notes
result primarily from delevering of the Class A-1 and Class A-2
Notes, which have paid down $118 million since the rating
action in August 2010. As a result of the delevering, the
overcollateralization ratios of the rated notes have increased since the
rating action in August 2010. As of the latest trustee report dated
May 5, 2011, the Class A/B, Class C, Class D and
Class E overcollateralization ratios are reported at 154.90%,
133.50%, 121.50%, 117.30%,
respectively, versus July 2010 levels of 134.20%,
122.00%, 114.40%, and 111.70%,
respectively. All overcollateralization tests are currently in
compliance.
Credit quality of the underlying portfolio has remained stable since the
rating action in August 2010. Credit quality is observed through
the average credit rating (as measured by the weighted average rating
factor) and the proportion of securities from issuers rated Caa1 and below.
As of the May 5, 2011 report, the weighted average rating
factor is currently 2713 compared to 2755 in the July 2010 report,
and securities rated Caa1 or lower make up approximately 9% of
the underlying portfolio versus 7.8% in July 2010.
In addition, there are currently $3.4 million of defaulted
securities based on the May 2011 trustee report, compared to $10.1
million in July 2010.
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 $307.9 million, defaulted par of $3.36
million, a weighted average default probability of 21.41%
(implying a WARF of 3539), a weighted average recovery rate upon
default of 40.47%, and a diversity score of 50.
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.
Avery Point CLO, Limited, issued in December 2003, 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.
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
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, whereby a positive difference corresponds
to lower expected losses), assuming that all other factors are held
equal:
Moody's Adjusted WARF -- 20% (2831)
Class A-1: 0
Class A-2: 0
Class A-3: 0
Class B: 0
Class C-1: +2
Class C-2: +2
Class D-1: +2
Class D-2: +2
Class E: +2
Moody's Adjusted WARF + 20% (4247)
Class A-1: 0
Class A-2: 0
Class A-3: 0
Class B: 0
Class C-1: -2
Class C-2: -2
Class D-1: -2
Class D-2: -2
Class E: -2
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 behaviour 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 Moody's assumed defaulted assets: Market value fluctuations
in defaulted assets reported by the trustee 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.
2) 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.
3) De-levering: The main source of uncertainty in this transaction
is whether de-levering from unscheduled principal proceeds will
continue and at what pace. De-levering may accelerate due
to high prepayment levels in the bond and loan markets and/or collateral
sales by the manager, which may have significant impact on the notes'
ratings.
Further information on Moody's analysis of this transaction is available
on www.moodys.com.
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
Alena Chen
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 ratings of CLO notes issued by Avery Point CLO, Limited
