USD $215 million of debt securities affected
New York, April 01, 2011 -- Moody's Investors Service announced today that it has upgraded the ratings
of the following notes issued by Carlyle Veyron CLO, Ltd.:
U.S.$84,000,000 Class A-1-B
Floating Rate Notes due 2018, Upgraded to Aa1 (sf); previously
on October 1, 2009 Downgraded to Aa3 (sf);
U.S.$50,000,000 Class A-2 Floating
Rate Notes due 2018, Upgraded to Aaa (sf); previously on October
1, 2009 Downgraded to Aa2 (sf);
U.S.$17,500,000 Class B Floating Rate
Notes due 2018, Upgraded to Aa2 (sf); previously on October
1, 2009 Downgraded to A3 (sf);
U.S.$28,750,000 Class C Floating Rate
Deferrable Notes due 2018, Upgraded to Baa1 (sf); previously
on October 1, 2009 Downgraded to Ba1 (sf);
U.S.$35,000,000 Class D Floating Rate
Deferrable Notes due 2018, Upgraded to Ba1 (sf); previously
on October 1, 2009 Downgraded to B1 (sf).
RATINGS RATIONALE
According to Moody's, the rating actions taken on the notes result
primarily from an increase in the overcollateralization ratio of the rated
notes and improvement in the credit quality of the underlying portfolio
since the rating action in October 2009.
The overcollateralization ratio of the rated notes have improved primarily
as a result of par-building from the reinvestment of diverted interest
proceeds, higher than previously anticipated recoveries realized
on defaulted securities, and restructurings of defaulted securities.
As of the March 2011 trustee report, the Senior Overcollateralization
Ratio is reported at 122.1% versus the September 2009 level
of 116.16%.
Moody's also notes that the deal has benefited from improvement in the
credit quality of the underlying portfolio since the rating action in
October 2009. Based on the March 2011 trustee report, the
weighted average rating factor is 2437 (before the application of a modifier)
compared to 2559 in September 2009, and securities rated Caa1 and
below make up approximately 6.47% of the underlying portfolio
versus 13.28% in September 2009. The deal also experienced
a decrease in defaults. In particular, the dollar amount
of defaulted securities has decreased to $2.1 million from
approximately $14.9 million in September 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 and principal proceeds balance of $496
million, defaulted par of $2.5 million, a weighted
average default probability of 24.7% (implying a WARF of
3310), a weighted average recovery rate upon default of 43.6%,
and a diversity score of 75. These default and recovery properties
of the collateral pool are incorporated in Moody's 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.
Carlyle Veyron CLO, Ltd. issued on June 28, 2006,
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 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, whereby a positive difference corresponds
to lower expected losses), assuming that all other factors are held
equal:
Moody's Adjusted WARF - 20% (2648)
Class A-1-R: 0
Class A-1-A: 0
Class A-1-B: +2
Class A-2: +1
Class B: +2
Class C: +2
Class D: +2
Moody's Adjusted WARF + 20% (3972 )
Class A-1-R: 0
Class A-1-A: 0
Class A-1-B: -2
Class A-2: -2
Class B: -2
Class C: -2
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.
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
Shan Lai
Associate Analyst
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Min Xu
Vice President - Senior Analyst
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 Carlyle Veyron CLO, Ltd.
