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Related Issuers
Rating Action:

Moody's upgrades the ratings of CLO notes issued by Integral Funding Ltd.

17 Feb 2011

USD $448 million of debt securities affected

New York, February 17, 2011 -- Moody's Investors Service announced today that it has upgraded the ratings of the following notes issued by Integral Funding Ltd.:

U.S. $232,000,000 Class A-2 Floating Rate Notes Due 2017, Upgraded to Aaa (sf); previously on September 1, 2010, Upgraded to Aa2 (sf);

U.S. $56,000,000 Class A-3 Floating Rate Notes Due 2017, Upgraded to Aa3 (sf); previously on September 1, 2010, Upgraded to A2 (sf);

U.S. $72,000,000 Class B Deferrable Floating Rate Notes Due 2017, Upgraded to Baa2 (sf); previously on August 7, 2009, Confirmed at Ba1 (sf);

U.S. $42,000,000 Class C Deferrable Floating Rate Notes Due 2017, Upgraded to B1 (sf); previously on August 7, 2009, Downgraded to B3 (sf);

U.S. $46,000,000 Class D Deferrable Floating Rate Notes Due 2017, Upgraded to Caa3 (sf); previously on November 23, 2010, Ca (sf) Placed Under Review for Possible Upgrade.

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 39% or $212 million since the rating action in September 2010. As a result of the delevering, the overcollateralization ratios have increased since the rating action in August 2010. As of the latest trustee report dated February 4, 2011, the Class A, Class B and Class C overcollateralization ratios are reported at 130.89%, 117.39% and 110.72%, respectively, versus August 2010 levels of 123.33%, 113.58% and 108.57%, respectively.

Moody's also notes that the credit profile of the underlying portfolio has been relatively stable since the last rating action. Based on the February 2011 trustee report, the weighted average rating factor is currently 2850 compared to 2882 in the August 2010 report. Additionally, defaulted securities total about $25.7 million of the underlying portfolio compared to $38.8 million in August 2010.

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 $805 million, defaulted par of 32 million, a weighted average default probability of 24.30% (implying a WARF of 3756), a weighted average recovery rate upon default of 44.4%, and a diversity score of 71. 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.

Integral Funding Ltd., issued in September 2007, 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 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 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% (3005)

Class A-1: +1

Class A-2: +1

Class A-3: +1

Class B: +2

Class C: +2

Class D: +2

Moody's Adjusted WARF + 20% (4507)

Class A-1: -1

Class A-2: -1

Class A-3: -2

Class B: -2

Class C: -2

Class D: -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. 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.

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
Connie Li
Associate Analyst
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Leon Mogunov
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 Integral Funding Ltd.
No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

CREDIT RATINGS ISSUED BY MOODY'S INVESTORS SERVICE, INC. AND ITS RATINGS AFFILIATES (“MIS”) ARE MOODY’S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MOODY’S PUBLICATIONS MAY INCLUDE MOODY’S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE MOODY’S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY’S RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND MOODY’S OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY’S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. CREDIT RATINGS AND MOODY’S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND MOODY’S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. NEITHER CREDIT RATINGS NOR MOODY’S PUBLICATIONS COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT RATINGS AND PUBLISHES MOODY’S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.

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MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.

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