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.
