USD $215 million of debt securities affected
New York, March 11, 2011 -- Moody's Investors Service announced today that it has upgraded the ratings
of the following notes issued by Cent CDO 15 Limited:
U.S. $61,000,000 Class A-1 Floating
Rate Notes Due 2021, Upgraded to Aa1 (sf); previously on Jul
16, 2009 Downgraded to Aa2 (sf);
U.S. $39,000,000 Class A-2b Floating
Rate Notes Due 2021, Upgraded to Aa2 (sf); previously on Jul
16, 2009 Downgraded to Aa3 (sf);
U.S. $39,500,000 Class A-3 Floating
Rate Notes Due 2021, Upgraded to A2 (sf); previously on Jul
16, 2009 Downgraded to A3 (sf);
U.S. $33,500,000 Class B Deferrable Floating
Rate Notes Due 2021, Upgraded to Baa2 (sf); previously on Jul
16, 2009 Confirmed at Ba1 (sf);
U.S. $23,000,000 Class C Deferrable Floating
Rate Notes Due 2021, Upgraded to Ba2 (sf); previously on Jul
16, 2009 Downgraded to B2 (sf);
U.S. $19,000,000 Class D Deferrable Floating
Rate Notes Due 2021, Upgraded to Caa1 (sf); previously on Nov
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 improvement in the credit quality of the underlying portfolio
since the rating action in July 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. In particular, as of the latest trustee report
dated February 4, 2011, the weighted average rating factor
is currently 2670 compared to 2880 in the June 2009 report, and
securities rated Caa1 or lower make up approximately 5.5%
of the underlying portfolio versus 15.4% in June 2009.
Additionally, defaulted securities total about $8.1
million of the underlying portfolio compared to $43.5 million
in June 2009.
The overcollateralization ratios of the rated notes have also improved
since the rating action in July 2009. The Class A, Class
B, Class C, and Class D overcollateralization ratios are reported
at 120.84%, 113.10%, 108.34%,
and 104.70%, respectively, versus June 2009
levels of 119.79%, 112.12%, 107.39%,
and 103.78%, respectively, and all related overcollateralization
tests are currently in compliance. Furthermore, Moody's adjusted
overcollateralization ratios of the rated notes have increased more than
trustee reported ratios since the rating action in July 2009 due to a
decrease in the percentage of securities with Ca or C ratings.
Moody's treated these Ca or C-rated securities as defaulted securities
in the rating action in July 2009 but is currently treating them as performing
securities as they are no longer Ca or C-rated following corporate
ratings upgrades.
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 $584
million, defaulted par of $13.0 million, a weighted
average default probability of 28.0% (implying a WARF of
3572), a weighted average recovery rate upon default of 42.9%,
and a diversity score of 80. 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.
Cent CDO 15 Limited, issued in July 2007, 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.
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% (2749)
Class A-1: +1
Class A-2A: 0
Class A-2B: +2
Class A-3: +3
Class B: +2
Class C: +2
Class D: +3
Moody's Adjusted WARF +20% (4124)
Class A-1: -2
Class A-2A: -1
Class A-2B: -2
Class A-3: -2
Class B: -2
Class C: -2
Class D: -3
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. 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.
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 and the manager has the ability to deteriorate the collateral
quality metrics' existing cushions against the covenant levels.
Moody's analyzed the impact of assuming lower of reported and covenanted
values for weighted average rating factor, weighted average spread,
weighted average coupon, and diversity score.
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, parties not 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
Adam Chmelynski
Associate Analyst
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Min Xu
Vice President - Senior Analyst
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 Cent CDO 15 Limited
