USD 59 million of debt securities affected
New York, March 23, 2011 -- Moody's Investors Service announced today that it has upgraded the ratings
of the following notes issued by WhiteHorse I Ltd.:
Class A-1LB Floating Rate Notes Due September 2016, Upgraded
to Aaa (sf); previously on Aug 27, 2009 Downgraded to Aa3 (sf);
Class A-2L Floating Rate Notes Due September 2016, Upgraded
to A1 (sf); previously on Aug 27, 2009 Downgraded to Baa1 (sf);
Class A-3L Floating Rate Notes Due September 2016, Upgraded
to Baa3 (sf); previously on Aug 27, 2009 Downgraded to Ba1
(sf);
Class B-1L Floating Rate Notes Due September 2016, Upgraded
to Ba3 (sf); previously on Aug 27, 2009 Downgraded to B1 (sf).
RATINGS RATIONALE
According to Moody's, the rating actions taken on the notes result
primarily from the delevering of the Class A-1LA Notes, which
have been paid down by approximately 70% or $84.2
million since the rating action in August 2009. As a result of
the delevering, the overcollateralization ratios of the rated notes
have improved. The Senior Class A, Class A, and Class
B-1L overcollateralization ratios are reported at 126.24%,
113.39%, and 107.90%, respectively,
versus August 2009 levels of 115.56%, 108.92%,
and 104.71%, respectively.
Moody's also notes that the credit profile of the underlying portfolio
has improved moderately since the last rating action. Based on
the February 2011 trustee report, the weighted average rating factor
is 2516 compared to 2562 in August 2009, and securities rated Caa1
and below make up approximately 3.7% of the underlying portfolio
versus approximately 8.9% in August 2009.
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 balance, including principal proceeds,
of $109 million, defaulted par of $6.8 million,
a weighted average default probability of 23.2% (implying
a WARF of 3665), a weighted average recovery rate upon default of
45.0%, and a diversity score of 46. 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.
WhiteHorse I Ltd., issued in July 2004, is a collateralized
loan obligation backed primarily by a portfolio of senior secured loans.
The principal methodology used in these ratings 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 a number of 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% (2932)
Class A-1LA: 0
Class A-1LB: 0
Class A-2L: +3
Class A-3L: +2
Class B-1L: +2
Moody's Adjusted WARF + 20% (4398)
Class A-1LA: 0
Class A-1LB: 0
Class A-2L: -1
Class A-3L: -2
Class B-1L: -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 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 deal's overcollateralization levels.
Further, the timing of recoveries and the manager's decision to
work out versus selling 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. 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.
Further information on Moody's analysis of this transaction is available
on www.moodys.com.
REGULATORY DISCLOSURES
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not 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
Adam Chmelynski
Associate Analyst
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
David H. Burger
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 WhiteHorse I Ltd.