USD $304 million of debt securities affected
New York, October 08, 2010 -- Moody's Investors Service announced today that it has upgraded the ratings
of the following notes issued by GSC Partners Gemini Fund, Ltd.:
U.S. $436,300,000 Class A Floating Rate
Notes due 2014 (current balance of $ 243,412,938),
Upgraded to Aaa (sf); previously on Aug 13, 2009 Confirmed
at Aa1 (sf);
U.S. $20,800,000 Class B Deferrable Floating
Rate Notes due 2014, Upgraded to Aa3 (sf); previously on Aug
13, 2009 Upgraded to A3 (sf);
U.S. $40,200,000 Class C Deferrable Floating
Rate Notes due 2014, Upgraded to Baa3( sf); previously on Aug
13, 2009 Upgraded to Ba1 (sf).
According to Moody's, the rating actions taken on the notes result
primarily from the delevering of the Class A Notes, which have been
paid down by approximately 30% or $106 million since the
last rating action in August 2009. As a result of the delevering,
the overcollateralization ratios have increased since the last rating
action in August 2009. As of the latest trustee report dated August
16, 2010, the Class A, Class B and Class C overcollateralization
ratios are reported at 165.29%, 152.28%
and 132.17%, respectively, versus July 2009
levels of 143.57%, 136.10% and 123.65%,
Moody's also notes that the credit profile of the underlying portfolio
has been relatively stable since the last rating action. Moody's
adjusted WARF has been stable and Moody's assessment of the deal's exposure
to securities rated Caa1 and below has declined since the last rating
action due to a decrease in the percentage of securities with ratings
on "Review for Possible Downgrade" or with a "Negative Outlook."
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 $397
million, defaulted par of $55 million, weighted average
default probability of 30.42% (implying a WARF of 5030),
a weighted average recovery rate upon default of 44.29%,
and a diversity score of 45. 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.
The rating on Class A Notes reflects the actual underlying rating of the
Class A Notes. This underlying rating is based solely on the intrinsic
credit quality of the Class A Notes in the absence of the guarantee from
Syncora Guarantee Inc., whose insurance financial strength
rating was downgraded from Caa1 to Ca on March 9, 2009. The
above actions 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."
GSC Partners Gemini Fund, Ltd., issued in August 2002,
is a collateralized loan obligation backed primarily by a portfolio of
senior secured loans.
The principal methodology used in rating GSC Partners Gemini Fund,
Ltd. was "Moody's Approach to Rating Collateralized Loan Obligations"
rating methodology published in August 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
Moody's modeled the transaction using the Binomial Expansion Technique,
as described in Section 126.96.36.199 of the "Moody's Approach
to Rating Collateralized Loan Obligations" rating methodology published
in August 2009.
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 3% 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. 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 losses), assuming
that all other factors are held equal:
Moody's Adjusted WARF -- 20% (4024)
Class A: 0
Class B: +1
Class C: +2
Moody's Adjusted WARF + 20% (6036)
Class A: 0
Class B: -3
Class C: -2
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 losses), assuming that all other factors are held
Moody's Adjusted WARR + 2% (46.29)
Class A: 0
Class B: 0
Class C: 0
Moody's Adjusted WARR - 2% (42.29)
Class A: 0
Class B: -1
Class C: -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 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) 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 selling 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
4) 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.
5) Management continuity: GSC Group, Inc. has recently
filed a motion with the bankruptcy court to sell its investment management
contracts. Until a new manager is appointed GSC will continue to
manage the transaction under Chapter 11 protection. There is some
uncertainty as to whether a new manager will be found to take over this
transaction and how well a transition to a new manager is going to be
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, public information, 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.
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.
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.
Structured Finance Group
Moody's Investors Service
Ramon O. Torres
Senior Vice President
Structured Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's upgrades the ratings of CLO notes issued by GSC Partners Gemini Fund, Ltd.
250 Greenwich Street
New York, NY 10007