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Related Issuers
Rating Action:

Moody's upgrades the ratings of notes issued by Clydesdale CLO 2004, Ltd.

15 Feb 2011

USD $283 million of debt securities affected

New York, February 15, 2011 -- Moody's Investors Service announced today that it has upgraded the ratings of the following notes issued by Clydesdale CLO 2004, Ltd.:

U.S. $ 255,000,000 Class A-1 Floating Rate Notes Due 2016 (current balance of $217,408,421), Upgraded to Aaa (sf); previously on July 17, 2009 Downgraded to Aa2 (sf);

U.S. $ 22,500,000 Class A-2 Floating Rate Notes Due 2016, Upgraded to A1 (sf); previously on July 17, 2009 Downgraded to A3 (sf);

U.S. $13,250,000 Class B-1 Deferrable Floating Rate Notes Due 2016, Upgraded to Baa2 (sf); previously on July 17, 2009 Downgraded to Ba2 (sf);

U.S. $5,750,000 Class B-2 Deferrable Fixed Rate Notes Due 2016, Upgraded to Baa2 (sf); previously on July 17, 2009 Downgraded to Ba2 (sf);

U.S. $11,500,000 Class C-1 Floating Rate Notes Due 2016, Upgraded to B1 (sf); previously on November 23, 2010 Caa2 (sf) Placed Under Review for Possible Upgrade;

U.S. $2,500,000 Class C-2 Fixed Rate Notes Due 2016, Upgraded to B1 (sf); previously on November 23, 2010 Caa2 (sf) Placed Under Review for Possible Upgrade;

U.S. $10,000,000 Class D Floating Rate Notes Due 2016, 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 overcollateralization ratios of the notes since the rating action in July 2009.

Improvement in the credit quality is observed through an improvement in the average credit rating (as measured by the weighted average rating factor). In particular, as of the latest trustee report dated January 7, 2011, the weighted average rating factor is currently 2620 compared to 2721 in the June 15, 2009 report. Additionally, defaulted securities total about $6.9million (2% of total par) of the underlying portfolio compared to $28.3million (8% of total par) in June 2009.

The overcollateralization ratios of the rated notes have also improved since the rating action. The Class A, B, C and D Overcollateralization Tests are reported at 120.17%, 112.47%, 107.40% and 104.04% respectively, versus June 2009 levels of 118.05%, 110.49%, 105.51% and 102.22% respectively. All overcollateralization tests are currently in compliance. Moody's expects deleveraging to continue as a result of the end of the reinvestment period in October 2010. On the last Distribution Date as of January 18, 2011, the Class A1 notes were paid down by $37.6 million or about 15% since the rating action in July 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 balance of $294 million, defaulted par of $7.8 million, a weighted average default probability of 23.44% (implying a WARF of 3524), a weighted average recovery rate upon default of 43.87% and a diversity score of 69. 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.

Clydesdale CLO 2004, Ltd., issued in August 2004, 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 modelled 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% (2819)

Class A1: 0

Class A2: +3

Class B1: +3

Class B2: +3

Class C1: +2

Class C2: +2

Class D: +2

Moody's Adjusted WARF +20% (4229)

Class A1: -1

Class A2: -1

Class B1: -1

Class B2: -1

Class C1: -1

Class C2: -1

Class D: -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 behaviour 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) 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 ) 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.

3) 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. 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
Yasmine Mahdavi
Asst Vice President - Analyst
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Ramon O. Torres
Senior Vice President
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 Clydesdale CLO 2004, 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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