USD 33 million of debt securities affected
New York, April 27, 2012 -- Moody's Investors Service announced today that it has upgraded the ratings
of the following notes issued by CSAM Funding IV:
U.S.$19,000,000 Class B-1 Deferrable
Floating Rate Notes Due 2016; Upgraded to Aa1 (sf); previously
on July 14, 2011, Upgraded to Aa3 (sf);
U.S.$14,000,000 Class B-2 Deferrable
Fixed Rate Notes Due 2016; Upgraded to Aa1 (sf); previously
on July 14, 2011, Upgraded to Aa3 (sf).
RATINGS RATIONALE
According to Moody's, the rating actions taken on the notes are
primarily a result of deleveraging and an increase in the transaction's
overcollateralization ratios. Moody's notes that the Class A-1
Notes have been paid down approximately 41% or $104 million
since the rating action in July 2011. As a result of the deleveraging,
the overcollateralization ratios have increased since the last rating
action. Based on the latest trustee report dated April 3,
2012, the Class A, Class B, Class C, and Class
D overcollateralization ratios are reported at 147.79%,
128.35%, 117.14%, and 112.63%,
respectively, versus July 2011 levels of 132.44%,
120.63%, 113.29%, and 110.21%,
respectively.
Additionally, Moody's notes that the underlying portfolio includes
a number of investments in securities that mature after the maturity date
of the notes. Based on the April 2012 trustee report, reference
securities that mature after the maturity date of the notes have increased
to $105 million or 37.2% of the underlying reference
portfolio from $86 million in July 2011. These investments
potentially expose the notes to market risk in the event of liquidation
at the time of the notes' maturity.
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 $281.5 million, defaulted par of $20.6
million, a weighted average default probability of 15.93%
(implying a WARF of 2710), a weighted average recovery rate upon
default of 48.6%, and a diversity score of 51.
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.
CSAM Funding IV, issued in June 2004, 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 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 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% (2168)
Class A-1: 0
Class A-1V: 0
Class A-1NV: 0
Class A-2: 0
Class B-1: +1
Class B-2: +1
Class C-1: +2
Class C-2: +2
Class D-1: +1
Class D-2: +1
Moody's Adjusted WARF + 20% (3252)
Class A-1: 0
Class A-1V: 0
Class A-1NV: 0
Class A-2: 0
Class B-1: -2
Class B-2: -2
Class C-1: -1
Class C-2: -1
Class D-1: -2
Class D-2: -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 2014 and 2016 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 continue
and at what pace. Deleveraging 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) 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) 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.
Further information on Moody's analysis of this transaction is available
on www.moodys.com.
REGULATORY DISCLOSURES
The Global Scale Credit Ratings on this press release that are issued
by one of Moody's affiliates outside the EU are endorsed by Moody's
Investors Service Ltd., One Canada Square, Canary Wharf,
London E 14 5FA, UK, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that has issued a particular Credit Rating is available on www.moodys.com.
For ratings issued on a program, series or category/class of debt,
this announcement provides relevant 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 relevant 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 relevant 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.
Information sources used to prepare the rating are the following:
parties involved in the ratings, public information, and confidential
and proprietary Moody's Investors Service information.
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.
Moody's considers the quality of information available on the rated
entity, obligation or credit satisfactory for the purposes of issuing
a rating.
Moody's adopts all necessary measures so that the information it
uses in assigning a 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 the ratings disclosure page on www.moodys.com
for general disclosure on potential conflicts of interests.
Please see the ratings disclosure page on www.moodys.com
for information on (A) MCO's major shareholders (above 5%) and
for (B) further information regarding certain affiliations that may exist
between directors of MCO and rated entities as well as (C) the names of
entities that hold ratings from MIS that have also publicly reported to
the SEC an ownership interest in MCO of more than 5%. A
member of the board of directors of this rated entity may also be a member
of the board of directors of a shareholder of Moody's Corporation;
however, Moody's has not independently verified this matter.
Please see Moody's Rating Symbols and Definitions on the Rating Process
page on www.moodys.com for further information on the meaning
of each rating category and the definition of default and recovery.
Please see ratings tab on the issuer/entity page on www.moodys.com
for the last rating action and the rating history.
The date on which some ratings were first released goes back to a time
before Moody's ratings were fully digitized and accurate data may not
be available. Consequently, Moody's 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 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.
Shan Lai
Associate 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
Rodrigo Araya
Senior Vice President
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 CLO notes issued by CSAM Funding IV
