USD $474 million of debt securities affected
New York, March 29, 2011 -- Moody's Investors Service announced today that it has upgraded the ratings
of the following notes issued by CSAM Funding IV:
U.S.$319,000,000 Class A-1 Floating
Rate Notes Due 2016 (current outstanding balance of $ $265,385,573.97),
Upgraded to Aaa (sf); previously on July 23, 2009 Downgraded
to Aa3 (sf);
U.S.$100,000 Class A-1V Floating Rate
Notes Due 2016 (current outstanding balance of $83,192.97);
Upgraded to Aaa (sf); previously on July 23, 2009 Downgraded
to Aa3 (sf);
U.S.$129,900,000 Class A-1NV Floating
Rate Notes Due 2016 (current outstanding balance of $108,067,667.89);
Upgraded to Aaa (sf); previously on July 23, 2009 Downgraded
to Aa3 (sf);
U.S.$32,500,000 Class A-2 Floating
Rate Notes Due 2016; Upgraded to Aa3 (sf); previously on July
23, 2009 Downgraded to A3 (sf);
U.S.$19,000,000 Class B-1 Deferrable
Floating Rate Notes Due 2016; Upgraded to Baa3 (sf); previously
on July 23, 2009 Downgraded to Ba2 (sf);
U.S.$14,000,000 Class B-2 Deferrable
Fixed Rate Notes Due 2016; Upgraded to Baa3 (sf); previously
on July 23, 2009 Downgraded to Ba2 (sf);
U.S.$16,500,000 Class C-1 Floating
Rate Notes Due 2016; Upgraded to Ba3 (sf); previously on November
23, 2010 Caa1 (sf) Placed Under Review for Possible Upgrade;
U.S.$7,500,000 Class C-2 Fixed
Rate Notes Due 2016; Upgraded to Ba3 (sf); previously on November
23, 2010 Caa1 (sf) Placed Under Review for Possible Upgrade;
U.S.$6,750,000 Class D-1 Floating
Rate Notes Due 2016; Upgraded to Caa3 (sf); previously on November
23, 2010 Ca (sf) Placed Under Review for Possible Upgrade;
U.S.$4,250,000 Class D-2 Fixed
Rate Notes Due 2016; Upgraded to Caa3 (sf); previously on November
23, 2010 Ca (sf) Placed Under Review for Possible Upgrade.
RATINGS RATIONALE
According to Moody's, the rating actions taken on the notes result
primarily from the delevering of the Class A Notes, which have been
paid down by approximately 16% or $70.1 million since
the rating action in July 2009. As a result of the delevering,
the overcollateralization ratios have increased since the rating action.
As of the latest trustee report dated February 18, 2011, the
Class A, Class B, Class C and Class D overcollateralization
ratios are reported at 126.76%, 117.23%,
111.15% and 108.57%, respectively,
versus July 2009 levels of 115.44%, 107.96%,
103.10% and 100.90%, respectively and
are all currently in compliance. In addition, the Class D
Notes are no longer deferring interest and the deferred interest has been
repaid.
Moody's also notes that the deal has benefited from improvement in the
credit quality of the underlying portfolio since the rating action in
July 2009. Based on the February 2011 trustee report, the
weighted average rating factor is 2617 compared to 2806 in July 2009,
and securities rated Caa1 and below make up approximately 7.7%
of the underlying portfolio versus 11.4% in July 2009.
The deal also experienced a decrease in defaults. In particular,
the dollar amount of defaulted securities has decreased to about $19
million from approximately $44 million in July 2009.
Moody's notes that this deals is exposed to a 11.9%
of collateral maturing after the Stated Maturity of the notes and credit
estimates make up approximately 9.4% of the underlying portfolio.
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 $513.5 million, defaulted par of $20.3
million, a weighted average default probability of 23.54%
(implying a WARF of 3542), a weighted average recovery rate upon
default of 42.19%, and a diversity score of 70.
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.
CSAM Funding IV, issued in June 2004, is a collateralized
loan obligation backed primarily by a portfolio of senior secured loans.
The principal methodologies used in this rating were "Moody's Approach
to Rating Collateralized Loan Obligations" published in August 2009
and "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
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, due to the low diversity of
the collateral pool, CDOROM 2.6 was used to simulate a default
distribution that was then applied as an input in the cash flow model.
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% (2834)
Class A-1: 0
Class A-1V: 0
Class A-1NV: 0
Class A-2: +2
Class B-1: +2
Class B-2: +2
Class C-1: +2
Class C-2: +2
Class D-1: +2
Class D-2: +2
Moody's Adjusted WARF + 20% (4250)
Class A-1: -1
Class A-1V: -1
Class A-1NV: -1
Class A-2: -2
Class B-1: -2
Class B-2: -2
Class C-1: -2
Class C-2: -2
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 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 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. Delevering: The main source of uncertainty in this transaction
is whether delevering from unscheduled principal proceeds will continue
and at what pace. Delevering 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. 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.
3. 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.
4. Exposure to credit estimates: The deal is exposed to a
large number of securities whose default probabilities are assessed through
credit estimates. In the event that Moody's is not provided the
necessary information to update the credit estimates in a timely fashion,
the transaction may be impacted by any default probability stresses Moody's
may assume in lieu of updated credit estimates.
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
Kai Ang
Asst Vice President - Analyst
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
David H. Burger
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 CSAM Funding IV
