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I AGREE
26 Jul 2011
USD $35 million of debt securities affected
New York, July 26, 2011 -- Moody's Investors Service announced today that it has upgraded the ratings
of the following notes issued by Longhorn CDO III, Ltd.:
US $18,000,000 Class C Floating Rate Deferrable Interest
Senior Secured Notes, Upgraded to A1 (sf); previously on June
22, 2011 Baa2 (sf) Placed Under Review for Upgrade;
US $4,500,000 Class D-1 Floating Rate Deferrable
Interest Senior Secured Notes, Upgraded to Ba3 (sf); previously
on June 22, 2011 Caa2 (sf) Placed Under Review for Upgrade;
US $5,900,000 Class D-2 Floating Rate Deferrable
Interest Senior Secured Participating Notes, Upgraded to Ba3 (sf);
previously on June 22, 2011 Caa2 (sf) Placed Under Review for Upgrade;
US $6,600,000 Class E Floating Rate Deferrable Interest
Senior Secured Notes (current balance $6,381,307),
Upgraded to Caa3 (sf); previously on June 22, 2011 Ca (sf)
Placed Under Review for Upgrade.
RATINGS RATIONALE
According to Moody's, the rating actions taken on the notes
are primarily a result of applying Moody's revised CLO assumptions described
in "Moody's Approach to Rating Collateralized Loan Obligations"
published in June 2011. The primary changes to the modeling assumptions
include (1) a removal of the temporary 30% default probability
macro stress implemented in February 2009 as well as (2) increased BET
liability stress factors and increased recovery rate assumptions.
The actions also reflect consideration of delevering of the senior notes
since the rating action in April 2011. Moody's notes that the Class
A-1 Notes have been paid down by approximately 73% or $26
million since the rating action in April 2011. After applying the
payment of principal on the July 10, 2011 payment date, the
pro-forma Class A, Class B Class C and Class D overcollateralization
ratios are 259.13%, 166.45%, 122.60%,
and 106.41%, respectively, versus March 2011
levels of 187.98%, 143.84%, 116.49%,
and 104.96%, respectively.
Due to the impact of revised and updated key assumptions referenced in
"Moody's Approach to Rating Collateralized Loan Obligations" published
in June 2011, 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 $84 million, defaulted par of $1.3
million, a weighted average default probability of 12.65%
(implying a WARF of 2585), a weighted average recovery rate upon
default of 49.37%, and a diversity score of 34.
The 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.
Longhorn CDO III, Ltd., issued in March of 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 June 2011.
Please see the Credit Policy page on www.moodys.com for
a copy of this methodology.
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 June 2011.
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 2013 and 2015 which may create challenges for issuers
to refinance. CLO notes' performance may also be impacted
by 1) the manager's investment strategy and behavior and 2) divergence
in legal interpretation of CLO 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
For ratings issued on a program, series or category/class of debt,
this announcement provides relevant regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides relevant regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides relevant regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
Information sources used to prepare the rating are the following:
parties involved in the ratings, public information, and confidential
and proprietary Moody's Investors Service information.
Moody's did not receive or take into account a third party assessment
on the due diligence performed regarding the underlying assets or financial
instruments related to the monitoring of this transaction in the past
six months.
Moody's considers the quality of information available on the rated
entity, obligation or credit satisfactory for the purposes of issuing
a rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a rating is of sufficient quality and from sources Moody's
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Please see Moody's Rating Symbols and Definitions on the Rating Process
page on www.moodys.com for further information on the meaning
of each rating category and the definition of default and recovery.
Please see ratings tab on the issuer/entity page on www.moodys.com
for the last rating action and the rating history.
The date on which some ratings were first released goes back to a time
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be available. Consequently, Moody's 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 www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
New York
Raina Patel
Associate Analyst
Structured Finance Group
Moody's Investors Service, Inc.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Jian Hu
MD - Structured Finance
Structured Finance Group
Moody's Investors Service, Inc.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's Investors Service, Inc.
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 Longhorn CDO III, Ltd.
No Related Data.
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