USD $349 million of debt securities affected
New York, May 20, 2011 -- Moody's Investors Service announced today that it has upgraded the ratings
of the following notes issued by Champlain CLO, Ltd.:
US$335M Class A-1 Senior Secured Floating Rate Notes Notes
(current balance of $257,368,424), Upgraded to
Aaa (sf); previously on Jul 21, 2009 Downgraded to Aa3 (sf);
US$30M Class A-2 Revolving Senior Secured Floating Rate
Notes Notes (current balance of $23,047,919),
Upgraded to Aaa (sf); previously on Jul 21, 2009 Downgraded
to Aa3 (sf);
US$10.7M Class B Senior Secured Deferrable Floating Rate
Notes Notes, Upgraded to Aa2 (sf); previously on Jul 21,
2009 Confirmed at Baa3 (sf);
US$24.4M Class C-1 Secured Floating Rate Notes Notes,
Upgraded to Baa2 (sf); previously on Jul 21, 2009 Downgraded
to Caa1 (sf);
US$10M Class C-2 Secured Fixed Rate Notes Notes, Upgraded
to Baa2 (sf); previously on Jul 21, 2009 Downgraded to Caa1
US$25M Class C-1 Combination Notes (current rated balance
of $14,195,674), Upgraded to A3 (sf); previously
on Jul 21, 2009 Downgraded to Caa1 (sf);
US$13M Class C-2 Combination Notes (current rated balance
of $9,311,498), Upgraded to Baa1 (sf); previously
on Jul 21, 2009 Downgraded to B3 (sf).
According to Moody's, the rating actions taken on the notes result
primarily from the delevering of the Class A Notes, which have been
paid down by approximately 23.2% or $84.6
million since the rating action in July 2009. As a result of the
delevering, the overcollateralization ratios have increased since
the rating action in July 2009. Based on the latest trustee report
from April 2011, the Class A overcollateralization ratio is reported
at 132.0%, versus June 2009 levels of 114.8%.
Moody's also notes that the credit profile of the underlying portfolio
has been relatively stable since the last rating action. Based
on the April 2011 trustee report, the weighted average rating factor
is 2796 compared to 2653 in June 2009, and the percentage of securities
rated Caa1 and below has remained the same at 11.5% since
June 2009. The deal also experienced a decrease in defaults.
In particular, the dollar amount of defaulted securities has decreased
to about $2.9 million from approximately $38.7
million in June 2009.
In addition to the delevering of the Class A Notes, the rating actions
taken on the Class C-1 Combination Notes and Class C-2 Combination
Notes also reflect corrections to the modeling of the Class C-1
Combination Notes' principal and the Class C-2 Combination
Notes' Rated Balance.
The correction to the Class C-1 Combination Notes reflects the
impact of changes to the calculation of the current principal amount and
the modeling of principal reductions for these notes. In previous
rating actions , Moody's incorrectly calculated the current
principal amount of the Class C-1 Combination Notes and incorrectly
modeled future principal reductions as being reduced solely by distributions
from its Preferred Share component. In fact, the current
principal and future principal reductions of these notes should incorporate
distributions received from both its Class C-1 Notes and Preferred
Share underlying components, and today's rating action reflects
The correction to the Class C-2 Combination Notes reflects the
impact of a change in the calculation of the current Rated Balance of
these notes. In previous rating actions, Moody's incorrectly
calculated the current Class C-2 Combination Notes' Rated
Balance as reduced solely by distributions from its Preferred Share component.
In fact, the Rated Balance on these notes is reduced by distributions
received from its Class C-2 Notes and Preferred Share underlying
components above a 3.0% coupon, and today's
rating action reflects this correction.
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 $323.1 million , defaulted par of $6.8
million, a net APEX Revolver amount of of $42.4M equal
to the APEX Revolver Limit less the APEX Revolver Balance, a weighted
average default probability of 23.8% (implying a WARF of
3655), a weighted average recovery rate upon default of 43.2%,
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.
Champlain CLO, Ltd., issued in May 2004, is a
collateralized loan obligation backed primarily by a portfolio of senior
The principal methodology used in this rating was "Moody's Approach to
Rating Collateralized Loan Obligations" published in August 2009.
Another methodology used was "Using the Structured Note Methodology to
Rate CDO Combo-Notes" published in February 2004.
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
Moody's modeled the transaction using the Binomial Expansion Technique,
as described in Section 126.96.36.199 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
Moody's Adj. WARF -20% (2924)
C-1 Combo: +2
C-2 Combo: +3
Moody's Adj. WARF +20% (4386)
C-1 Combo: -2
C-2 Combo: -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 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) 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 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
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.
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.
Structured Finance Group
Moody's Investors Service
Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's upgrades the ratings of notes issued by Champlain CLO, Ltd.
250 Greenwich Street
New York, NY 10007