Moody's also affirms the ratings of USD 37 million of notes
New York, November 05, 2013 -- Moody's Investors Service announced today that it has confirmed the rating
of the following notes issued by Bristol Bay Funding Ltd.:
U.S. $24,000,000 Class A-2 Floating
Rate Senior Notes Due 2016 (current outstanding balance of $19,334,945),
Upgraded to A2 (sf); previously on January 24, 2012 Downgraded
to Baa1 (sf).
Moody's also affirmed the ratings of the following notes:
U.S. $40,000,000 Class B Floating Rate
Deferrable Senior Subordinate Notes Due 2016 (current outstanding balance
of $37,096,571), Affirmed B1 (sf); previously
on January 24, 2012 Downgraded to B1 (sf).
RATINGS RATIONALE
According to Moody's, the rating actions taken on the notes
are primarily a result of the amortization of the reference portfolio
since October 2012. Moody's notes that the Retained Calculation
Amount has been reduced to zero. The Class A-1 Notes have
been fully paid down, and the Class A-2 Notes, which
are currently the most senior class of notes, have been paid down
by approximately 19.4% or $5 million since October
2012.
Notwithstanding the benefits of the deleveraging, Moody's notes
that the credit quality of the reference portfolio has deteriorated since
October 2012. Based on the September 2013 trustee report,
the weighted average rating factor is currently 3120 compared to 2743
in October 2012.
Moody's also notes that the reference portfolio includes a number of investments
in securities that mature after the maturity date of the notes ("long-dated
assets"). Based on Moody's calculations, long-dated
assets currently make up approximately 55.54% of the reference
portfolio par. These investments potentially expose the notes to
market risk in the event of liquidation at the time of the notes' maturity.
In addition, the deal references investments in a material amount
of thinly or untraded loans whose lack of liquidity may pose additional
risks relating to the issuer's ultimate ability or inclination to pursue
a liquidation of such assets, especially if the sales can be transacted
only at heavily discounted price levels. Moody's affirmed the rating
of the Class B Notes due in part to the market risk posed by the exposure
to these assets.
Moody's notes that the key model inputs used by Moody's in its analysis,
such as par, weighted average rating factor, diversity score,
and weighted average recovery rate, are based on its published methodology
and 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 $79
million, defaulted par of $27 million, a weighted average
default probability of 18.63% (implying a WARF of 3785),
a weighted average recovery rate upon default of 48.46%,
and a diversity score of 14. 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.
Bristol Bay Funding Ltd., issued in March 2004, is
a synthetic collateralized loan obligations referencing a pool of primarily
senior secured loans.
The principal methodology used in this rating was "Moody's Global Approach
to Rating Collateralized Loan Obligations" published in May 2013.
Please see the Credit Policy page on www.moodys.com for
a copy of this methodology.
Moody's modeled the transaction using a cash flow model based on
the Binomial Expansion Technique, as described in Section 2.3
of the "Moody's Global Approach to Rating Collateralized Loan Obligations"
rating methodology published in May 2013.
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% (3028)
Class A-2: 0
Class B: 0
Moody's Adjusted WARF + 20% (4542)
Class A-2: 0
Class B: 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 upcoming
speculative-grade debt maturities 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) Deleveraging: The main source of uncertainty in this transaction
is whether deleveraging from unscheduled principal proceeds will continue
and at what pace. Deleveraging 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) 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. In consideration of the size of the deal's exposure
to long-dated assets, which increases its sensitivity to
the liquidation assumptions used in the rating analysis, Moody's
ran different scenarios considering a range of liquidation value assumptions.
However, actual long-dated asset exposure and prevailing
market prices and conditions at the CLO's maturity will drive the
extent of the deal's realized losses, if any, from long-dated
assets.
Further information on Moody's analysis of this transaction is available
on www.moodys.com.
REGULATORY DISCLOSURES
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.
For ratings issued on a program, series or category/class of debt,
this announcement provides certain 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 certain 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 certain 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.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this rating action, and
whose ratings may change as a result of this rating action, the
associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
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.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Ye Zhang
Associate 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
Ramon O Torres
Senior Vice President/Manager
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 USD 19 million of CLO notes issued by Bristol Bay Funding Ltd.
