USD 32 million of debt securities affected
New York, January 13, 2013 -- Moody's Investors Service announced today that it has upgraded the ratings
of the following notes issued by Dryden VII Leveraged Loan CDO 2004:
The following ratings are Endorsed by Moody's Investors Service Ltd.
for regulatory use in the EU
U.S. $22,000,000 Class B-1L Floating
Rate Notes Due September 16, 2016, Upgraded to Aaa (sf);
previously on May 10, 2012 Upgraded to Aa1 (sf);
U.S. $7,500,000 Class B-2L Floating
Rate Notes Due September 16, 2016, Upgraded to Aa2 (sf);
previously on May 10, 2012 Upgraded to A1 (sf).
U.S. $22,000,000 Class A-3F Fixed
Rate Notes Due September 16, 2016 (current balance of $2,128,367),
Affirmed Aaa (sf); previously on August 5, 2011 Upgraded to
Aaa (sf)
RATINGS RATIONALE
According to Moody's, the rating actions taken on the notes
are primarily a result of deleveraging of the senior notes and an increase
in the transaction's overcollateralization ratios since the rating
action in May 2012. Moody's notes that the Class A Notes
have been paid down by approximately 96% or $58.8
million since the last rating action. Based on the latest trustee
report dated December 7, 2012, the Class B-1L and Class
B-2L overcollateralization ratios are reported at 184.25%
and 155.05%, respectively, versus April 2012
levels of 144.1% and 132.1%, respectively.
The Class B-1L and Class B-2L overcollateralization ratios
reported in the December 2012 report do not reflect the December 17th
payment distribution when $15.7 million were paid to the
Class A-3F Notes.
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 $57.4 million, defaulted par of
$2.3 million, a weighted average default probability
of 18.01% (implying a WARF of 3535), a weighted average
recovery rate upon default of 45.73%, and a diversity
score of 18. 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.
Dryden VII Leveraged Loan CDO 2004, issued in July 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 a cash flow model based on
the Binomial Expansion Technique, as described in Section 2.3
of the "Moody's Approach to Rating Collateralized Loan Obligations"
rating methodology published in June 2011.
For securities whose default probabilities are assessed through credit
estimates ("CEs"), Moody's applied additional default probability
stresses. For each CE where the related exposure constitutes more
than 3% of the collateral pool, Moody's applied a 2-notch
equivalent assumed downgrade (but only on the CEs representing in aggregate
the largest 30% of the pool) as described in Moody's Ratings Implementation
Guidance "Updated Approach to the Usage of Credit Estimates in Rated Transactions",
October 2009. Moody's applied this stress to 16.3%
of the underlying portfolio.
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% (2828)
Class A-3F: 0
Class B-1L: 0
Class B-2L: +1
Moody's Adjusted WARF + 20% (4242)
Class A-3F: 0
Class B-1L: 0
Class B-2L: -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 upcoming
speculative-grade debt maturities 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) 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.
Further information on Moody's analysis of this transaction is available
on www.moodys.com.
REGULATORY DISCLOSURES
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.
For ratings issued on a program, series or category/class of debt,
this announcement provides certain 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 certain 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 certain 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.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this rating action, and
whose ratings may change as a result of this rating action, the
associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
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.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Craig Sabatini
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 Dryden VII Leveraged Loan CDO 2004
