USD $50.7 million of debt securities affected
New York, April 08, 2011 -- Moody's Investors Service announced today that it has upgraded the ratings
of the following notes issued by GSC Partners CDO Fund VII, Limited:
US $29,000,000 Class C Notes, Upgraded to Baa3
(sf); previously on Jul 2, 2009 Confirmed at Ba1 (sf);
US $21,700,000 Class D Notes, Upgraded to Ba3
(sf); previously on Jul 2, 2009 Confirmed at B3 (sf).
RATINGS RATIONALE
According to Moody's, the rating actions taken on the notes result
primarily from an increase in the transaction's overcollateralization
ratios and improvement in the credit quality of the underlying portfolio
since the rating action in July 2009.
As of the latest trustee report from February 2011, the Class A/B,
Class C, Class D, and Class E overcollateralization ratios
are reported at 136.4%, 121.8%,
112.7%, and 106.3%, respectively,
versus June 2009 levels of 120.0%, 109.3%,
102.4%, and 97.3%, respectively.
The overcollateralization ratios have benefited from the delevering of
the Class A-1 and A-2 Notes, which have been paid
down by approximately 12.8% or $54 million since
the rating action in July 2009. Moody's also notes that the deal
has benefited from improvement in the credit quality of the underlying
portfolio since the rating action in July 2009. Based on the February
2011 trustee report, the weighted average rating factor is 3469
compared to 3671 in June 2009. The deal also experienced a decrease
in defaults. In particular, the dollar amount of defaulted
securities has decreased to about $34.6 million from approximately
$53.8 million in June 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 balance
of $318.6 million, defaulted par of $38.8
million, a weighted average default probability of 36.4%
(implying a WARF of 5300), a weighted average recovery rate upon
default of 41.6%, and a diversity score of 52.
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.
GSC Partners CDO Fund VII, Limited, issued in May 2006,
is a collateralized loan obligation backed primarily by a portfolio of
senior secured loans.
The principal methodology used in this rating was the "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
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.
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 9.4% 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.
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% (4240)
Class A-1: -1
Class A-2: -1
Class B: -2
Class C1: -1
Class D: -2
Class E: -1
Moody's Adjusted WARF -20% (6360)
Class A-1: 0
Class A-2: 0
Class B: 2
Class C1: 3
Class D: 2
Class E: 2
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. 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.
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.
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.
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
Jacqueline Yuen
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 GSC Partners CDO Fund VII, Limited
