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Rating Action:

Moody's upgrades the ratings of USD 62.1 million of notes issued by Nob Hill CLO, Limited

Global Credit Research - 20 Sep 2013

Moody's also affirms the ratings of USD 106.9 million of notes

New York, September 20, 2013 -- Moody's Investors Service announced today that it has upgraded the ratings of the following notes issued by Nob Hill CLO, Limited:

U.S. $23,000,000 Class A-2 Senior Secured Floating Rate Notes Due 2018, Upgraded to Aaa (sf); previously on September 9, 2011 Upgraded to Aa1 (sf);

U.S. $11,350,000 Class B Senior Secured Floating Rate Notes Due 2018, Upgraded to Aaa (sf); previously on September 9, 2011 Upgraded to Aa3 (sf);

U.S. $14,145,000 Class C Secured Deferrable Floating Rate Notes Due 2018, Upgraded to Aa3 (sf); previously on September 9, 2011 Upgraded to A3 (sf);

U.S. $13,580,000 Class D Secured Deferrable Floating Rate Notes Due 2018, Upgraded to Baa2 (sf); previously on September 9, 2011 Upgraded to Baa3 (sf).

Moody's also affirmed the ratings of the following notes:

U.S. $210,000,000 Class A-1 Senior Secured Floating Rate Notes Due 2018 (current balance of $95,625,112), Affirmed Aaa (sf); previously on September 9, 2011 Upgraded to Aaa (sf);

U.S. $11,300,000 Class E Secured Deferrable Floating Rate Notes Due 2018, Affirmed B1 (sf); previously on September 9, 2011 Upgraded to B1 (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. Moody's notes that the Class A-1 Notes have been paid down by approximately 53% or $108.1 million since August 2012. Based on the latest trustee report dated August 2013, the Class A/B, Class C, Class D, and Class E overcollateralization ratios are reported at 132.83%, 120.58% 110.78% and 103.76%, respectively, versus August 2012 levels of 119.22%, 112.53%, 106.78%, and 102.43%, respectively.

Notwithstanding the benefits of deleveraging, Moody's notes that the credit quality of the underlying portfolio has deteriorated since the last rating action. Based on the August 2013 trustee report, the weighted average rating factor is currently 2971 compared to 2682 in August 2012. Moody's also calculates that 17.77% of the current portfolio is comprised by exposure to issuers with low speculative-grade ratings of Caa1 or below.

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 $174.2 million, defaulted par of $10.8 million, a weighted average default probability of 20.44% (implying a WARF of 3207), a weighted average recovery rate upon default of 51.02%, and a diversity score of 39. 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.

Nob Hill CLO, Limited, issued in July 2006, is a collateralized loan obligation backed primarily by a portfolio of 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% (2566)

Class A-1: 0

Class A-2: 0

Class B: 0

Class C: +2

Class D: +2

Class E: +1

Moody's Adjusted WARF + 20% (3848)

Class A-1: 0

Class A-2: 0

Class B: -1

Class C: -1

Class D: -2

Class E: -1

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.

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.

Hyuckjae Kwon
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 62.1 million of notes issued by Nob Hill CLO, Limited
No Related Data.

 

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