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Related Issuers
Rating Action:

Moody's upgrades the ratings of notes issued by Airlie CLO 2006-1 Ltd.

11 Feb 2011

USD $342 million of debt securities affected

New York, February 11, 2011 -- Moody's Investors Service announced today that it has upgraded the following notes issued by Airlie CLO 2006-1 Ltd.:

U.S.$287,000,000 Class A-1 Senior Secured Floating Rate Notes Due May 20, 2020 (current outstanding balance $270,499,946), Upgraded to Aa2 (sf); previously on September 4, 2009 Downgraded to Aa3 (sf);

U.S.$16,000,000 Class A-2 Senior Secured Floating Rate Notes Due May 20, 2020, Upgraded to A2 (sf); previously on September 4, 2009 Downgraded to A3 (sf);

U.S.$16,500,000 Class B Senior Secured Deferrable Floating Rate Notes Due May 20, 2020, Upgraded to Baa1 (sf); previously on November 23, 2010 Ba1 (sf) Placed Under Review for Possible Upgrade;

U.S.$31,000,000 Class C Senior Secured Deferrable Floating Rate Notes Due May 20, 2020, Upgraded to Ba3 (sf); previously on November 23, 2010 Caa1 (sf) Placed Under Review for Possible Upgrade;

U.S.$8,000,000 Class D Secured Deferrable Floating Rate Notes Due May 20, 2020, Upgraded to Caa3 (sf); previously on November 23, 2010 Ca (sf) Placed Under Review for Possible Upgrade.

RATINGS RATIONALE

According to Moody's, the rating actions taken on the notes result primarily from improvement in the credit quality of the underlying portfolio and an increase in the transaction's overcollateralization ratios since the rating action in September 2009. In Moody's view, these positive developments coincide with reinvestment of sale proceeds (including higher than previously anticipated recoveries realized on defaulted securities) into substitute assets with higher par amounts and/or higher ratings.

Improvement in the credit quality is observed through an improvement in the average credit rating (as measured by the weighted average rating factor) and a decrease in the proportion of securities from issuers rated Caa1 and below. In particular, as of the latest trustee report dated January 12, 2011, the weighted average rating factor is currently 2464 compared to 2774 in the August 2009 report, and securities rated Caa1/CCC+ or lower make up approximately 2.8% of the underlying portfolio versus 8.7% in August 2009. Moody's adjusted WARF has also declined since the rating action in 2009 due to a decrease in the percentage of securities with ratings on "Review for Possible Downgrade" or with a "Negative Outlook." Additionally, there are currently no defaulted securities in the underlying portfolio compared to $16.2 million in August 2009.

The overcollateralization ratios of the rated notes have also improved since the rating action in September 2009. The Class A, Class B, Class C, and Class D overcollateralization ratios are reported at 124.75%, 117.96%, 107.01%, and 104.50%, respectively, versus August 2009 levels of 118.60%, 112.35%, 102.24%, and 99.85%, respectively, and all related overcollateralization tests are currently in compliance. Moody's also notes that the Class D Notes are no longer deferring interest and that all previously deferred interest has been paid in full.

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 and principal proceeds balance of $357 million, no defaulted par, a weighted average default probability of 27.42% (implying a WARF of 3571), a weighted average recovery rate upon default of 43.50%, and a diversity score of 55. 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.

Airlie CLO 2006-1 Ltd., issued in May 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 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 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% (2857)

Class A-1: +2

Class A-2: +3

Class B: +2

Class C: +2

Class D: +3

Moody's Adjusted WARF + 20% (4285)

Class A-1: -2

Class A-2: -1

Class B: -2

Class C: -1

Class D: -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 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) 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.

2) Weighted average life: The notes' ratings are sensitive to the weighted average life assumption of the portfolio, which may be extended due to the manager's decision to reinvest into new issue loans or other loans with longer maturities and/or participate in amend-to-extend offerings. Moody's tested for a possible extension of the actual weighted average life in its analysis.

3) Other collateral quality metrics: The deal is allowed to reinvest and the manager has the ability to deteriorate the collateral quality metrics' existing cushions against the covenant levels. Moody's analyzed the impact of assuming lower of reported and covenanted values for weighted average rating factor, weighted average spread, weighted average coupon, and diversity score.

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

Information sources used to prepare the credit rating are the following: parties 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
Shana Sethi
Analyst
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Yu Sun
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 notes issued by Airlie CLO 2006-1 Ltd.
No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

CREDIT RATINGS ISSUED BY MOODY'S INVESTORS SERVICE, INC. AND ITS RATINGS AFFILIATES (“MIS”) ARE MOODY’S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MOODY’S PUBLICATIONS MAY INCLUDE MOODY’S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE MOODY’S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY’S RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND MOODY’S OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY’S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. CREDIT RATINGS AND MOODY’S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND MOODY’S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. NEITHER CREDIT RATINGS NOR MOODY’S PUBLICATIONS COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT RATINGS AND PUBLISHES MOODY’S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.

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