USD $460 million of debt securities affected
New York, August 05, 2011 -- Moody's Investors Service announced today that it has upgraded the ratings
of the following notes issued by ColumbusNova CLO Ltd. 2006-II:
U.S.$375,000,000 Class A Senior Notes
Due April 4, 2018 (current outstanding balance of $372,535,745),
Upgraded to Aaa (sf); previously on June 22, 2011 Aa1 (sf)
Placed Under Review for Possible Upgrade;
U.S.$30,000,000 Class B Senior Notes
Due April 4, 2018, Upgraded to Aa3 (sf); previously on
June 22, 2011 A1 (sf) Placed Under Review for Possible Upgrade;
U.S.$22,000,000 Class C Deferrable Mezzanine
Notes Due April 4, 2018, Upgraded to Baa2 (sf); previously
on June 22, 2011 Baa3 (sf) Placed Under Review for Possible Upgrade;
U.S.$20,000,000 Class D Deferrable Mezzanine
Notes Due April 4, 2018, Upgraded to Ba1 (sf); previously
on June 22, 2011 Ba3 (sf) Placed Under Review for Possible Upgrade;
U.S.$15,000,000 Class E Deferrable Junior
Notes Due April 4, 2018, Upgraded to Ba3 (sf); previously
on June 22, 2011 B3 (sf) Placed Under Review for Possible Upgrade.
RATINGS RATIONALE
According to Moody's, the rating actions taken on the notes
are primarily a result of applying Moody's revised CLO assumptions described
in "Moody's Approach to Rating Collateralized Loan Obligations"
published in June 2011. The primary changes to the modeling assumptions
include (1) a removal of the temporary 30% default probability
macro stress implemented in February 2009 as well as (2) increased BET
liability stress factors and increased recovery rate assumptions.
The actions also reflect consideration of credit improvement of the underlying
portfolio since the rating action in September 2009. Based on the
June 2011 trustee report, the weighted average rating factor is
currently 2372 compared to 2848 in August 2009.
Additionally, Moody's notes that the underlying portfolio includes
a number of investments in securities that mature after the maturity date
of the notes. Based on the June 2011 trustee report, reference
securities that mature after the maturity date of the notes currently
make up approximately 4.2% of the underlying reference portfolio.
These investments potentially expose the notes to market risk in the event
of liquidation at the time of the notes' maturity.
Due to the impact of revised and updated key assumptions referenced in
"Moody's Approach to Rating Collateralized Loan Obligations" published
in June 2011, 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 $491.4 million, no defaulted par,
a weighted average default probability of 19.52% (implying
a WARF of 2667), a weighted average recovery rate upon default of
49.82%, and a diversity score of 75. 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.
ColumbusNova CLO Ltd. 2006-II, issued in December
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 June 2011.
Please see the Credit Policy page on www.moodys.com for
a copy of this methodology.
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 June 2011.
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 2013 and 2015 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) 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.
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 the worse of reported and covenanted values
for weighted average rating factor and diversity score. However,
as part of the base case, Moody's considered spread level
higher than the covenant and WARF level lower than the covenant due to
the large difference between the reported and covenant level.
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
For ratings issued on a program, series or category/class of debt,
this announcement provides relevant 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 relevant 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 relevant 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.
Information sources used to prepare the rating are the following:
parties involved in the ratings, public information, and confidential
and proprietary Moody's Investors Service information.
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.
Moody's considers the quality of information available on the rated
entity, obligation or credit satisfactory for the purposes of issuing
a rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a 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 Moody's Rating Symbols and Definitions on the Rating Process
page on www.moodys.com for further information on the meaning
of each rating category and the definition of default and recovery.
Please see ratings tab on the issuer/entity page on www.moodys.com
for the last rating action and the rating history.
The date on which some ratings were first released goes back to a time
before Moody's ratings were fully digitized and accurate data may not
be available. Consequently, Moody's 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 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.
New York
Shana Sethi
Asst Vice President - Analyst
Structured Finance Group
Moody's Investors Service, Inc.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Ramon O. Torres
Senior Vice President
Structured Finance Group
Moody's Investors Service, Inc.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
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 notes issued by ColumbusNova CLO Ltd. 2006-II