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Related Issuers
Rating Action:

Moody's upgrades the ratings of CLO notes issued by Eaton Vance CDO VIII, Ltd.

15 Apr 2011

USD $659 million of debt securities affected

New York, April 15, 2011 -- Moody's Investors Service announced today that it has upgraded the ratings of the following notes issued by Eaton Vance CDO VIII, Ltd.

U.S.$ 583,500,000 Class A Senior Secured Floating Rate Notes Due 2022 (current outstanding balance of $553,500,000), Upgraded to Aa1 (sf); previously on October 1, 2009 Downgraded to Aa2 (sf);

U.S. $48,000,000 Class B Second Priority Deferrable Floating Rate Notes Due 2022, Upgraded to Baa1 (sf); previously on October 1, 2009 Confirmed at Baa3 (sf);

U.S. $23,250,000 Class C Third Priority Deferrable Floating Rate Notes Due 2022, Upgraded to Ba1 (sf); previously on October 1, 2009 Confirmed at Ba3 (sf);

U.S. $33,750,000 Class D Fourth Priority Deferrable Floating Rate Notes Due 2022, Upgraded to B1 (sf); previously on October 1, 2009 Confirmed at B3 (sf).

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 and improvement in the credit quality of the underlying portfolio since the rating action in October 2009.

The overcollateralization ratios of the rated notes have improved since the rating action in October 2009. As per the March 2011 trustee report, the Class A, Class B, Class C, and Class D overcollateralization ratios are reported at 126.8%, 116.7%, 112.3%, and 106.6% respectively, versus September 2009 levels of 122.8%, 113.0%, 108.8%, and 103.3% respectively, and all related overcollateralization tests are currently in compliance.

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. Based on the March 2011 trustee report, the weighted average rating factor is 2056 compared to 2454 in September 2009, and securities rated Caa1 and below make up approximately 5.3% of the underlying portfolio versus 12.7% in September 2009. The deal has also experienced a decrease in defaulted securities. The dollar amount of defaulted securities has decreased from $36 million in September 2009 to $2.4 million in March 2011.

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 $698 million, defaulted par of $5.7 million, weighted average default probability of 26.0% (implying a WARF of 3255), a weighted average recovery rate upon default of 43.8%, 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.

Eaton Vance CDO VIII, Ltd., issued on July 27, 2006, 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% (2604)

Class A: +1

Class B: +2

Class C: +2

Class D: +2

Moody's Adjusted WARF +20% (3906)

Class A: -2

Class B: -2

Class C: -1

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 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) 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.

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. However, as part of the base case, Moody's considered spread and coupon levels higher than the covenant levels due to the large difference between the reported and covenant levels.

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
Leon Mogunov
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 Eaton Vance CDO VIII, Ltd.
No Related Data.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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