USD $106 million of debt securities affected
New York, October 12, 2010 -- Moody's Investors Service announced today that it has upgraded the ratings
of the following notes issued by Katonah V, Ltd.:
U.S.$184,500,000 Class A-1 Floating
Rate Notes Due 2015 (current outstanding balance of $78,067,150),
Upgraded to Aaa (sf); previously on July 14, 2009 Downgraded
to Aa3 (sf);
U.S.$10,000,000 Class A-2 Floating
Rate Notes Due 2015, Upgraded to Aa3 (sf); previously on July
14, 2009 Downgraded to Baa1 (sf);
U.S.$14,000,000 Class B-1 Floating
Rate Notes Due 2015, Upgraded to Ba2 (sf); previously on July
14, 2009 Downgraded to Ba3 (sf);
U.S.$4,000,000 Class B-2 Fixed
Rate Notes Due 2015, Upgraded to Ba2 (sf); previously on July
14, 2009 Downgraded to Ba3 (sf).
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 54% or $91.6
million since the last rating action in July 2009. As a result
of the delevering, the overcollateralization ratios of the Class
A, Class B, and Class C Notes increased to 133.2%,
112.3%, and 103.7%, respectively,
based on the latest trustee report dated September 9, 2010,
vs. the May 2009 levels of 116.5%, 105.9%,
and 101.1%, respectively.
Moody's also notes that the credit profile of the underlying portfolio
has been relatively stable since the last rating action, as measured
by Moody's adjusted WARF, due to a decrease in the percentage of
securities with ratings on "Review for Possible Downgrade" or with a "Negative
Outlook" since the last rating action.
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 $118.6
million, defaulted par of $10.5 million, weighted
average default probability of 24.02% (implying a WARF of
3811), a weighted average recovery rate upon default of 40.85%,
and a diversity score of 48. 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.
Katonah V, Ltd., issued in May 2003, is a collateralized
loan obligation backed primarily by a portfolio of senior secured loans.
The principal methodology used in rating Katonah V 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
6 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 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% (3049)
Class A-1 Notes: 0
Class A-2 Notes: +2
Class B-1 Notes: +1
Class B-2 Notes: +1
Class C Notes: +1
Class D Notes: +1
Moody's Adjusted WARF + 20% (4573)
Class A-1 Notes: -1
Class A-2 Notes: -2
Class B-1 Notes: -2
Class B-2 Notes: -2
Class C Notes: -1
Class D Notes: 0
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
equal:
Moody's Adjusted WARR +2% (42.85%)
Class A-1 Notes: 0
Class A-2 Notes: +1
Class B-1 Notes: 0
Class B-2 Notes: 0
Class C Notes: 0
Class D Notes: 0
Moody's Adjusted WARR - 2% (38.85%)
Class A-1 Notes: 0
Class A-2 Notes: 0
Class B-1 Notes: -1
Class B-2 Notes: -1
Class C Notes: -1
Class D Notes: 0
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.
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
value.
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.
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.
New York
Min Xu
Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Ramon O. Torres
Senior Vice President
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.
Moody's upgrades the ratings of CLO notes issued by Katonah V, Ltd.
