USD $68 million of debt securities affected
New York, March 09, 2011 -- Moody's Investors Service announced today that it has upgraded the ratings
of the following notes issued by Dryden V-Leveraged Loan CDO 2003:
U.S. $17,000,000 Class B-1 Floating
Rate Senior Notes Due December 22, 2015, Upgraded to Aa2 (sf);
previously on November 23, 2010 A2 (sf) Placed Under Review for
Possible Upgrade;
U.S. $10,000,000 Class B-2 Fixed
Rate Senior Notes Due December 22, 2015, Upgraded to Aa2 (sf);
previously on November 23, 2010 A2 (sf) Placed Under Review for
Possible Upgrade;
U.S. $9,000,000 Class C-1 Floating
Rate Deferrable Notes Due December 22, 2015, Upgraded to A3
(sf); previously on November 23, 2010 Baa3 (sf) Placed Under
Review for Possible Upgrade;
U.S. $6,500,000 Class C-2 Fixed
Rate Deferrable Notes Due December 22, 2015, Upgraded to A3
(sf); previously on November 23, 2010 Baa3 (sf) Placed Under
Review for Possible Upgrade;
U.S. $7,500,000 Class D-1 Floating
Rate Deferrable Notes Due December 22, 2015, Upgraded to Ba3
(sf); previously on November 23, 2010 Caa2 (sf) Placed Under
Review for Possible Upgrade;
U.S. $5,000,000 Class D-2 Floating
Rate Deferrable Notes Due December 22, 2015, Upgraded to Ba3
(sf); previously on November 23, 2010 Caa2 (sf) Placed Under
Review for Possible Upgrade;
U.S. $4,500,000 Class D-3 Fixed
Rate Deferrable Notes Due December 22, 2015, Upgraded to Ba3
(sf); previously on November 23, 2010 Caa2 (sf) Placed Under
Review for Possible Upgrade;
U.S. $8,500,000 Class E Floating Rate
Deferrable Notes Due December 22, 2015, 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 due to an increase in the transaction's overcollateralization
ratios since the rating action in June 2010.
The overcollateralization ratios of the rated notes have improved primarily
due to amortization of the Class A Notes, which have been paid down
by approximately $52 million or 37% since the rating action
in June 2010. As per the January 2011 trustee report, the
Class A/B, Class C, Class D, and Class E, overcollateralization
ratios are reported at 145.4%, 128.3%,
113.7%, and 107.5% respectively,
versus April 2010 levels of 128.9%, 118.0%,
108.1%, and 103.7%, respectively,
and all related overcollateralization tests are currently in compliance.
The credit quality of the portfolio has been relatively stable (as measured
by the weighted average rating factor) and proportion of securities from
issuers rated Caa1 and below, have decreased since the rating action
in June 2010. Based on the January 2011 trustee report, the
weighted average rating factor is 2833 compared to 2826 in April 2010,
and securities rated Caa1 and below make up approximately 11.8%
of the underlying portfolio versus 12.3% in April 2010.
The deal also experienced a decrease in defaults. In particular,
the dollar amount of defaulted securities has decreased to approximately
$3.0 million from $9.0 million in April 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 $169
million, defaulted par of $3.0 million, weighted
average default probability of 24.9% (implying a WARF of
4065), a weighted average recovery rate upon default of 42.2%,
and a diversity score of 39. 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.
Dryden V-Leveraged Loan CDO 2003 Corp, issued on December
10, 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.
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% (3252)
Class A: 0
Class B-1: +2
Class B-2: +2
Class C-1: +2
Class C-2: +2
Class D-1: +2
Class D-2: +2
Class D-3: +2
Class E: +1
Moody's Adjusted WARF + 20% (4878)
Class A: 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
Class D-3: -1
Class E: -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 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 deals' 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.
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
Aniket Deshpande
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 Dryden V-Leveraged Loan CDO 2003