USD 102.7 million of debt securities affected
New York, May 29, 2012 -- Moody's Investors Service announced today that it has upgraded the ratings
of the following notes issued by Navigator CDO 2005, Ltd.:
U.S. $26,000,000 Class A-2 Floating
Rate Senior Secured Term Notes due 2017, Upgraded to Aaa (sf);
previously on August 12, 2011, Upgraded to Aa1 (sf);
U.S. $15,500,000 Class B-1 Floating
Rate Secured Deferrable Term Notes due 2017, Upgraded to Aa1 (sf);
previously on August 12, 2011, Upgraded to A3 (sf);
U.S. $15,000,000 Class B-2 Fixed
Rate Secured Deferrable Term Notes due 2017, Upgraded to Aa1 (sf);
previously on August 12, 2011, Upgraded to A3 (sf);
U.S. $21,500,000 Class C-1 Floating
Rate Subordinate Secured Deferrable Term Notes due 2017 (current balance
of $14,786,662), Upgraded to Baa2 (sf);
previously on August 12, 2011, Upgraded to Ba1 (sf);
U.S. $8,000,000 Class C-2 Fixed
Rate Subordinate Secured Deferrable Term Notes due 2017 (current balance
of $5,502,013), Upgraded to Baa2 (sf); previously
on August 12, 2011, Upgraded to Ba1 (sf);
U.S. $20,000,000 Class Q-2 Notes
due 2017 (current rated balance of $12,785,898),
Upgraded to Aaa (sf); previously on August 12, 2011,
Upgraded to A2 (sf);
U.S. $8,000,000 Class Q-3 Notes
due 2017 (current rated balance of $1,881,312),
Upgraded to A1 (sf); previously on August 12, 2011, Upgraded
to Baa3 (sf);
U.S. $5,000,000 Class Q-4 Notes
due 2017 (current rated balance of $3,288,736),
Upgraded to Aaa (sf); previously on August 12, 2011,
Upgraded to A2 (sf); and
U.S. $14,000,000 Class Q-5 Notes
due 2017 (current rated balance of $7,935,752),
Upgraded to Aaa (sf); previously on August 12, 2011,
Upgraded to A3 (sf).
RATINGS RATIONALE
According to Moody's, the rating actions taken on the notes
are primarily a result of deleveraging of the senior notes and an increase
in the transaction's overcollateralization ratios since the rating
action in August 2011. Moody's notes that the Class A-1
Notes have been paid down by approximately 47% or $152.6
million since the amortization period began in October 2011. Based
on the latest trustee report dated May 2012, the Class A,
Class B and Class C overcollateralization ratios are reported at 143.30
%, 123.99 %, and 113.79%
respectively, versus July 2011 levels of 126.66%,
115.59% and 109.23%, respectively.
The rating upgrades also reflect a correction to Moody's modeling
of the rated balances for the Class Q-2, Q-3,
Q-4, and Q-5 notes ("Combination Notes")
in its cash flow analysis. Due to an input error, previous
rating actions were based on rated balances for the Combination Notes
that had been modeled incorrectly. Moody's has reconciled
the rated balances with the trustee, and the model inputs have been
adjusted. Today's rating actions take into account the correct
rated balances for the Combination Notes.
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 $268 million, defaulted par of $19
million, a weighted average default probability of 12.97%
(implying a WARF of 2579), a weighted average recovery rate upon
default of 51.12%, and a diversity score of 51.
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.
Navigator CDO 2005, Ltd., issued in July 2005,
is a collateralized loan obligation backed primarily by a portfolio of
senior secured loans.
The methodologies used in this rating were "Moody's Approach to Rating
Collateralized Loan Obligations" published in June 2011, and
"Using the Structured Note Methodology to Rate CDO Combo-Notes"
published in February 2004. Please see the Credit Policy page on
www.moodys.com for a copy of these methodologies.
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.
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, where a positive difference corresponds
to lower expected loss), assuming that all other factors are held
equal:
Moody's Adjusted WARF -20% (2063)
Class A-1A: +0
Class A-1B: +0
Class A-2: +0
Class B-1: +1
Class B-2: +1
Class C-1: +3
Class C-2: +3
Class Q-2: +0
Class Q-3: +3
Class Q-4: +0
Class Q-4: +0
Moody's Adjusted WARF + 20% (3095)
Class A-1A: -0
Class A-1B: -0
Class A-2: -0
Class B-1: -2
Class B-2: -2
Class C-1: -1
Class C-2: -1
Class Q-2: -1
Class Q-3: - 2
Class Q-4: -2
Class Q-4: -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 2014 and 2016 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) Deleveraging: The main source of uncertainty in this transaction
is whether deleveraging 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.
3) Exposure to credit estimates: The deal is exposed to a large
number of securities whose default probabilities are assessed through
credit estimates. In the event that Moody's is not provided the
necessary information to update the credit estimates in a timely fashion,
the transaction may be impacted by any default probability stresses Moody's
may assume in lieu of updated credit estimates.
Further information on Moody's analysis of this transaction is available
on www.moodys.com.
REGULATORY DISCLOSURES
The Global Scale Credit Ratings on this press release that are issued
by one of Moody's affiliates outside the EU are endorsed by Moody's
Investors Service Ltd., One Canada Square, Canary Wharf,
London E 14 5FA, UK, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that has issued a particular Credit Rating is available on www.moodys.com.
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
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 the ratings disclosure page on www.moodys.com
for general disclosure on potential conflicts of interests.
Please see the ratings disclosure page on www.moodys.com
for information on (A) MCO's major shareholders (above 5%) and
for (B) further information regarding certain affiliations that may exist
between directors of MCO and rated entities as well as (C) the names of
entities that hold ratings from MIS that have also publicly reported to
the SEC an ownership interest in MCO of more than 5%. A
member of the board of directors of this rated entity may also be a member
of the board of directors of a shareholder of Moody's Corporation;
however, Moody's has not independently verified this matter.
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
before Moody's ratings were fully digitized and accurate data may not
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.
Cari Li
Asst Vice President - Analyst
Structured Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Rodrigo Araya
Senior Vice President
Structured Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
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 Navigator CDO 2005, Ltd.
