USD $29 million of debt securities affected
New York, April 01, 2011 -- Moody's Investors Service announced today that it has upgraded the ratings
of the following notes issued by Field Point III Ltd.:
U.S.$29,000,000 Class A-2 Floating
Rate Second Priority Senior Secured Term Notes Due February 1, 2016,
Upgraded to Aaa (sf); previously on March 16, 2009 Downgraded
to Aa2 (sf).
RATINGS RATIONALE
According to Moody's, the rating actions taken on the notes result
primarily from the delevering of the Class A-1 Notes, which
have been paid down by approximately 77% or $301.3
million since the rating action in March 2009. Moody's expects
delevering to continue as a result of the end of the deal's reinvestment
period in February 2010. As a result of the delevering, the
overcollateralization ratios have increased since the rating action in
March 2009. As of the latest trustee report dated February 11,
2011, the First and Second overcollateralization ratios are reported
at 340.9% and 157.8%, respectively,
versus February 2009 levels of 170.7% and 129.9%,
respectively.
Moody's also notes that the credit profile of the underlying portfolio
has been relatively stable since the rating action in March 2009.
Based on the February 2011 trustee report, the weighted average
rating factor is 4445 compared to 4462 in February 2009. The deal
also experienced a decrease in defaults. In particular, the
dollar amount of defaulted securities has decreased to about $36
million from approximately $72 million in February 2009.
The rating on the Class A-2 Notes reflects the actual underlying
rating of the Class A-2 Notes. This underlying rating is
based solely on the intrinsic credit quality of the Class A-2 Notes
in the absence of the guarantee from Assured Guaranty Corp. ("Assured"),
whose insurance financial strength rating is currently Aa3. The
above action on the Class A-2 Notes is a result of, and is
consistent with, Moody's modified approach to rating structured
finance securities wrapped by financial guarantors as described in the
press release dated November 10, 2008, titled "Moody's modifies
approach to rating structured finance securities wrapped by financial
guarantors."
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 $441 million, defaulted par of $36 million,
a weighted average default probability of 43.31% (implying
a WARF of 6902), a weighted average recovery rate upon default of
35.37%, and a diversity score of 18. 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.
Field Point III Ltd., issued in February 2006, is a
collateralized loan obligation backed primarily by a portfolio of small
and middle market loans.
The principal methodologies used in this rating 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.
Other methodologies and factors that may have been considered in the process
of rating this issuer can also be found on Moody's website.
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, due to the low diversity of
the collateral pool, CDOROM 2.8 was used to simulate a default
distribution that was then applied as an input in the cash flow model.
Moody's also supplemented its modeling with individual scenario
analysis to assess the ratings impact of jump-to-default
by certain large obligors.
For securities whose default probabilities are assessed through credit
estimates ("CEs"), Moody's applied additional default
probability stresses by assuming an equivalent of Caa3 for CEs that were
not updated within the last 15 months, which currently account for
approximately 11% of the collateral balance. In addition,
Moody's applied a 1.5 notch-equivalent assumed downgrade
for CEs last updated between 12-15 months ago, and a 0.5
notch-equivalent assumed downgrade for CEs last updated between
6-12 months ago. 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 stresses. 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 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% (5522)
Class A-1: 0
Class A-2: 0
Class B-1: +3
Moody's Adjusted WARF + 20% (8282)
Class A-1: 0
Class A-2: 0
Class B-1: -4
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) 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 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.
3) 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.
4) Lack of portfolio granularity: The performance of the portfolio
depends to a large extent on the credit conditions of a few large obligors
that are rated Caa1 or lower, especially when they experience jump
to default. Due to the deal's low diversity score and lack
of granularity, Moody's supplemented its typical Binomial
Expansion Technique analysis with a simulated default distribution using
Moody's CDOROMTM software and/or individual scenario analysis.
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
Shana Sethi
Analyst
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
David H. Burger
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 Field Point III Ltd.
