USD $88.7 million of debt securities affected
New York, April 12, 2011 -- Moody's Investors Service announced today that it has upgraded the ratings
of the following notes issued by GSC Partners CDO Fund IV, Limited:
U.S. $ 16,000,000 Class A-2 Guaranteed
Floating Rate Notes Due 2015, Upgraded to Aaa (sf); previously
on December 7, 2009 Downgraded to A1 (sf);
U.S. $ 144,000,000 Class A-3 Guaranteed
Floating Rate Notes Due 2015 (current outstanding balance of $42,732,998),
Upgraded to Aaa (sf); previously on December 7, 2009 Downgraded
to Aa3 (sf);
U.S. $ 30,000,000 Class B Deferrable
Floating Rate Notes Due 2015, Upgraded to A2 (sf); previously
on May 19, 2010 Confirmed at Baa3 (sf).
According to Moody's, the rating actions taken on the notes
result primarily from delevering of the Class A-1 and Class A-3
Notes, which have been paid down $159 million since the rating
action in December 2009. As a result of the delevering, the
overcollateralization ratios of the rated notes have increased since the
rating action in December 2009. As of the latest trustee report
dated March 21, 2011, the Class A and Class B overcollateralization
ratios are reported at 181.14% and 136.59%,
respectively, versus December 2009 levels of 124.09%
and 110.59%, respectively. All overcollateralization
tests are currently in compliance.
Credit quality of the underlying portfolio has deteriorated since the
rating action in December 2009. Credit quality is observed through
the average credit rating (as measured by the weighted average rating
factor) and the proportion of securities from issuers rated Caa1 and below.
As of the March 21, 2011 report, the weighted average rating
factor is currently 4175 compared to 3939 in the December 2009 report,
and securities rated Caa1 or lower make up approximately 47.2%
of the underlying portfolio versus 38.4% in December 2009.
In addition, there are currently $16.7 million of
defaulted securities based on the March 2011 trustee report, compared
to $42.4 million in December 2009.
The ratings on the Class A-2 Notes and the Class A-3 Notes
reflect their actual underlying ratings. These underlying ratings
are based solely on the intrinsic credit quality of the notes in the absence
of the guarantees from Ambac Assurance Corporation. The above actions
are a result of, and are 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 $176.4 million, defaulted par of $16.7
million, a weighted average default probability of 32% (implying
a WARF of 5872), a weighted average recovery rate upon default of
38.18%, and a diversity score of 34. 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 IV, Limited, issued in December 2003,
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
Moody's modeled the transaction using the Binomial Expansion Technique,
as described in Section 18.104.22.168 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
5% 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
Moody's Adjusted WARF -- 20% (4698)
Class A-1: 0
Class A-2: 0
Class A-3: 0
Class B: +2
Moody's Adjusted WARF + 20% (7046)
Class A-1: 0
Class A-2: -2
Class A-3: -2
Class B: -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 manager's investment strategy and behaviour 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 Moody's assumed defaulted assets: Market value fluctuations
in defaulted assets reported by the trustee 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) De-levering: The main source of uncertainty in this transaction
is whether de-levering from unscheduled principal proceeds will
continue and at what pace. De-levering may accelerate due
to high prepayment levels in the bond and loan markets and/or collateral
sales by the manager, which may have significant impact on the notes'
3) 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
Further information on Moody's analysis of this transaction is available
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.
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 CDO Fund IV, Limited
250 Greenwich Street
New York, NY 10007