USD $108 million of debt securities affected
New York, December 17, 2010 -- Moody's Investors Service announced today that it has upgraded the ratings
of the following notes issued by Goldman Sachs Asset Management CLO,
U.S.$28,600,000 Class A-2 Floating
Rate Notes Due 2022, Upgraded to A1 (sf); previously on May
28, 2009 Downgraded to A2 (sf);
U.S.$27,000,000 Class B Floating Rate
Notes Due 2022, Upgraded to A3 (sf); previously on May 28,
2009 Downgraded to Baa1 (sf);
U.S.$21,000,000 Class C Deferrable Floating
Rate Notes Due 2022, Upgraded to Baa3 (sf); previously on May
28, 2009 Confirmed at Ba1 (sf);
U.S.$18,000,000 Class D Deferrable Floating
Rate Notes Due 2022, Upgraded to B2 (sf); previously on May
28, 2009 Confirmed at B3 (sf);
U.S.$16,000,000 Class E Deferrable Floating
Rate Notes Due 2022 (current balance of $13,562,573),
Upgraded to Caa3 (sf); previously on November 23, 2010 Ca (sf)
Placed Under Review for Possible Upgrade.
According to Moody's, the rating action taken on the notes results
primarily from improvement in the credit quality of the underlying portfolio
since the last rating action in May 2009. 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.
Based on the November 2010 trustee report, the weighted average
rating factor is 2735 compared to 3180 in April 2009, and securities
rated Caa1 and below make up approximately 9.33% of the
underlying portfolio versus 13.79% in April 2009.
The deal also experienced a decrease in defaults. In particular,
the dollar amount of defaulted securities has decreased to $8.9
million from approximately $23.9 million in April 2009.
The overcollateralization ratios of the rated notes have improved since
the last rating action in May 2009 primarily as a result of lower overcollateralization
haircut amounts from discount obligations and excess securities rated
Caa and below. As of the latest trustee report dated November 2010,
the Class A/B, Class C, Class D, and Class E overcollateralization
ratios are reported at 121.42%, 113.57%,
107.61%, and 103.52%, respectively,
versus April 2009 levels of 109.43%, 102.52%,
97.18%, and 92.85%, respectively.
In particular, the Class E overcollateralization ratio has increased
due to the diversion of excess interest to delever the Class E notes in
the event of a Class E overcollateralization test failure. Moody's
also notes that the Class C, Class D, and Class E 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 of $374 million,
defaulted par of $8.9 million, weighted average default
probability of 31% (implying a WARF of 3920), a weighted
average recovery rate upon default of 43%, 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.
Goldman Sachs Asset Management CLO, P.L.C.,
issued on July 19, 2007, 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 18.104.22.168 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 a number of sensitivity analyses to test the impact on all rated
notes, including the following:
1. Various default probabilities to capture potential defaults
in the underlying portfolio.
2. A range of recovery rate assumptions for all assets to capture
variability in recovery rates.
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% (3136)
Class A1: +1
Class A2: +2
Class B: +2
Class C: +2
Class D: +2
Class E: +2
Moody's Adjusted WARF + 20% (4704)
Class A1: -2
Class A2: -2
Class B: -2
Class C: -2
Class D: -3
Class E: -2
Below is a summary of the impact of different recovery rate 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
Moody's Adjusted WARR + 2% (45%)
Class A1: 0
Class A2: +1
Class B: 0
Class C: 0
Class D: 0
Class E: 0
Moody's Adjusted WARR - 2% (41%)
Class A1: 0
Class A2: 0
Class B: -1
Class C: -1
Class D: -1
Class E: -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 managers' investment strategies 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 selling 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 coupon,
and diversity score. With respect to the weighted average spread,
Moody's assumed a mid-point between the reported and covenanted
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
Senior Vice President
Structured Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's upgrades the ratings of notes issued by Goldman Sachs Asset Management CLO, P.L.C.
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