USD $33 million of debt securities affected
New York, December 29, 2011 -- Moody's Investors Service announced today that it has upgraded the ratings
of the following notes issued by Lightpoint CLO 2004-1, Ltd.:
U.S.$8,500,000 Class C Deferrable Senior
Secured Notes due February 2014 (current outstanding balance of $8,631,951),
Upgraded to Aa1 (sf); previously on August 1, 2011 Upgraded
to Aa2 (sf) and Remained On Review for Possible Upgrade;
U.S.$8,500,000 Class D Secured Notes
due February 2014 (current outstanding balance of $9,102,628),
Upgraded to A1 (sf); previously on August 1, 2011 Upgraded
to A2 (sf) and Remained On Review for Possible Upgrade;
U.S.$11,000,000 Class E Subordinated
Secured Notes due February 2014 (current outstanding balance of $15,173,890),
Upgraded to B2 (sf); previously on August 1, 2011 Upgraded
to Caa1 (sf) and Remained On Review for Possible Upgrade.
RATINGS RATIONALE
According to Moody's, the rating actions taken on the notes
are primarily a result of an increase in the transaction's overcollateralization
ratios and delevering of the senior notes since the rating action in August
2011. Moody's notes that the Class A-1-B Notes
have been paid down in full and that the Class B Notes have been paid
down by approximately 39% or $10.1 million since
the rating action in August 2011. Based on the latest trustee report
dated November 30, 2011, the Class A/B, Class C,
Class D, and Class E overcollateralization ratios are reported 336.38%,
218.18%, 159.19% and 109.74%,
respectively, versus June 2011 levels of 190.49%,
159.00%, 135.58%, and 109.16%,
respectively.
Notwithstanding the positive effect of delevering and improved overcollateralization
coverage for all the notes, Moody's notes that the amount of interest
proceeds was insufficient to cover the entire portion of the Class X Principal
and Interest Amount on the November 2011 payment date. As a result,
the Class X Notes did not receive the full amount of their scheduled redemption,
and the Class C, Class D, and Class E Notes are all currently
deferring interest. Moody's expects the shortfall between interest
receipts and required payments on the Class X Notes to continue.
Moreover, all principal proceeds will be used to delever the Class
B Notes before any payments to the junior notes are made. As a
result, today's rating actions reflect concerns about the high likelihood
of continued interest deferral on the Class C Notes, Class D Notes,
and Class E Notes.
Additionally, Moody's notes that the credit quality of the underlying
portfolio has deteriorated since the rating action in August 2011.
In particular, the weighted average rating factor is currently 3009
compared to 2670 in June 2011. Furthermore, 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 Moody's calculation, reference securities that mature after the
maturity date of the notes currently make up approximately $10.1
million or 17.76% 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 $60.2 million, no defaulted par,
a weighted average default probability of 16.16% (implying
a WARF of 3592), a weighted average recovery rate upon default of
47.33%, and a diversity score of 20. 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.
Lightpoint CLO 2004-1, Ltd., issued in February
2004, 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.
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% (2874)
Class B: 0
Class X: 0
Class C: 0
Class D: 0
Class E: +1
Moody's Adjusted WARF + 20% (4310)
Class B: 0
Class X: 0
Class C: 0
Class D: -1
Class E: -1
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) 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) Exposure to credit estimates: The deal is exposed to a large
number of securities whose default probabilities are assessed through
credit estimates. In the event that Moody's is not provided the
necessary information to update the credit estimates in a timely fashion,
the transaction may be impacted by any default probability stresses Moody's
may assume in lieu of updated credit estimates. Moody's also conducted
stress tests to assess the collateral pool's concentration risk in obligors
bearing a credit estimate that constitute more than 3% of the collateral
pool.
4) Interest Payments on the Notes: Interest proceeds on the notes
are currently not sufficient to pay the Class X Notes Principal and Interest
Amount and principal proceeds are used to delever the Class B Notes.
As a result, the Class C Notes, Class D Notes, and Class
E Notes continue to defer interest payments. The Class C Notes,
Class D Notes, and Class E Notes will resume interest payments following
the complete repayment of the Class X Notes and Class B Notes, which
are both currently being paid down, but the timing of the resumption
of interest payments remains uncertain.
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
Although this credit rating has been issued in a non-EU country
which has not been recognized as endorsable at this date, this credit
rating is deemed "EU qualified by extension" and may still
be used by financial institutions for regulatory purposes until 31 January
2012. ESMA may extend the use of credit ratings for regulatory
purposes in the European Community for three additional months,
until 30 April 2012, if ESMA decides that exceptional circumstances
arise that may imply potential market disruption or financial instability.
Further information on the EU endorsement status and on the Moody's
office that has issued a particular Credit Rating is available on www.moodys.com.
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 the ratings disclosure page on www.moodys.com
for general disclosure on potential conflicts of interests.
Please see the ratings disclosure page on www.moodys.com
for information on (A) MCO's major shareholders (above 5%) and
for (B) further information regarding certain affiliations that may exist
between directors of MCO and rated entities as well as (C) the names of
entities that hold ratings from MIS that have also publicly reported to
the SEC an ownership interest in MCO of more than 5%. A
member of the board of directors of this rated entity may also be a member
of the board of directors of a shareholder of Moody's Corporation;
however, Moody's has not independently verified this matter.
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.
Shana Sethi
Asst Vice President - Analyst
Structured Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Jian Hu
MD - Structured Finance
Structured Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
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 Lightpoint CLO 2004-1, Ltd.
