EUR 62.9 million of debt securities affected
New York, December 14, 2010 -- Moody's Investors Service announced today that it has upgraded the ratings
of the following notes issued by Eurocredit Opportunities I PLC:
€14,000,000 Class B-1 Second Senior Secured Floating
Rate Notes due 2010 (current outstanding balance of €6,031,865.05),
Upgraded to Aaa; previously on Nov 29, 2005 Assigned Aa2
€10,000,000 Class B-2 Second Senior Secured Floating
Rate Notes due 2010 (current outstanding balance of €4,308,475.03),
Upgraded to Aaa; previously on Jun 23, 2008 Assigned Aa2
€12,000,000 Class B-3 Second Senior Secured Floating
Rate Notes due 2010 (current outstanding balance of €5,170,170.04),
Upgraded to Aaa; previously on Jun 23, 2008 Assigned Aa2
€14,000,000 Class C-1 Third Senior Secured Floating
Rate Notes due 2010, Upgraded to Aa2; previously on May 26,
2009 Downgraded to Baa2
€10,000,000 Class C-2 Third Senior Secured Floating
Rate Notes due 2013, Upgraded to Aa2; previously on May 26,
2009 Downgraded to Baa2
€12,000,000 Class C-3 Third Senior Secured Floating
Rate Notes due 2013, Upgraded to Aa2; previously on May 26,
2009 Downgraded to Baa2
RATINGS RATIONALE
According to Moody's, the rating actions taken on the notes result
primarily from the delevering of the Class B Notes (the Class B-1,
the Class B-2, and the Class B-3 Notes), which
have been paid down by approximately 57% or €20.5 million
since the last rating action in May 2009. Over the same period,
the €12.6 million arrangement fee, which was senior
to the rated notes, has been fully paid. In addition to principal
paydowns, excess spread is being diverted to pay down the Class
B Notes.
Moody's also notes that the deal has benefited from improvement in the
credit quality of the underlying portfolio since the last rating action.
Based on the October 2010 trustee report, the weighted average rating
factor is 2773 compared to 3467 in July 2009, and securities rated
Caa1 and below make up approximately 9.78% of the underlying
portfolio versus 21.84% in July 2009. The deal also
experienced a decrease in defaults. In particular, the dollar
amount of defaulted securities has decreased to zero from approximately
€3.6 million in July 2009.
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 of €173.1
million, weighted average default probability of 35.33%
(implying a WARF of 5116), a weighted average recovery rate upon
default of 57.05%, and a diversity score of 19.
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.
Eurocredit Opportunities I PLC, issued in November 2005, is
a multi-currency collateralized loan obligation backed primarily
by a portfolio of senior secured loans denominated in U.S.
Dollars, Euros, and Pounds Sterling.
The principal methodologies used in these ratings were "Moody's Approach
to Rating Collateralized Loan Obligations" published in August 2009 and
"Updated 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 double binomial approach within
the Binomial Expansion Technique framework, as described in Sections
2.3.2.1, 2.3.2.2 and 2.3.3.7
of the "Moody's Approach to Rating Collateralized Loan Obligations" rating
methodology published in August 2009.
Moody's also notes that a material proportion of the collateral pool consists
of debt obligations whose credit quality has been assessed through Moody's
Credit Estimates. As credit estimates do not carry credit indicators
such as ratings reviews and outlooks, a stress of a quarter notch-equivalent
assumed downgrade was applied to each of these estimates. 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) in lieu of the aforementioned stress. Notwithstanding
the foregoing, in all cases the lowest assumed rating equivalent
is Caa3.
In addition to the base case analysis described above, Moody's also
performed a number of sensitivity analyses to test the impact on all rated
notes, including the following:
1. Various default probabilities to capture potential defaults
in the underlying portfolio.
2. A range of recovery rate assumptions for all assets to capture
variability in recovery rates.
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% (4093)
Class B-1 Notes: 0
Class B-2 Notes: 0
Class B-3 Notes: 0
Class C-1 Notes: 0
Class C-2 Notes: 0
Class C-3 Notes: 0
Moody's Adjusted WARF +20% (6140)
Class B-1 Notes: 0
Class B-2 Notes: 0
Class B-3 Notes: 0
Class C-1 Notes: 0
Class C-2 Notes: 0
Class C-3 Notes: 0
Below is a summary of the impact of different recovery rate 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 WARR +2% (59.05%)
Class B-1 Notes: 0
Class B-2 Notes: 0
Class B-3 Notes: 0
Class C-1 Notes: 0
Class C-2 Notes: 0
Class C-3 Notes: 0
Moody's Adjusted WARR -2% (55.05%)
Class B-1 Notes: 0
Class B-2 Notes: 0
Class B-3 Notes: 0
Class C-1 Notes: 0
Class C-2 Notes: 0
Class C-3 Notes: 0
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 strategies 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) 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. Moody's also conducted
stress tests to assess the collateral pool's concentration risk in obligors
bearing a credit estimate that constitute more than 3% of the collateral
pool.
3) The deal has significant exposure to non-EUR denominated assets.
Volatilities in foreign exchange rate will have a direct impact on interest
and principal proceeds available to the transaction, which may affect
the expected loss of rated tranches.
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
Rodrigo Araya
Senior Vice President
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 Eurocredit Opportunities I PLC
