USD $35 million of debt securities affected
New York, November 12, 2010 -- Moody's Investors Service announced today that it has upgraded the ratings
of the following notes issued by NYLIM Flatiron CLO 2003-1Ltd.:
U.S. $17,500,000 Class B Floating Rate
Notes due 2015, Upgraded to Aa1 (sf); previously on September
30, 2009 Downgraded to A1 (sf);
U.S. $17,500,000 Class C Deferrable Floating
Rate Notes due 2015, Upgraded to A3 (sf); previously on March
20, 2009 Downgraded at Baa2 (sf)
RATINGS RATIONALE
According to Moody's, the rating actions taken on the notes result
primarily from the delevering of the Class A-1 and Class A-2
Notes, which have been paid down by approximately 46% or
$107.4 million since the last rating action in September
2009. Moody's expects delevering of the Class A-1 and Class
A-2 Notes to continue as a result of the end of the deal's reinvestment
period. As a result of the delevering, the overcollateralization
ratios have increased since the last rating action in September 2009.
As of the latest trustee report dated October 8, 2010, the
Class AB, Class C and Class D overcollateralization ratios increased
to 135.6%, 122.8% and 109.3%
respectively, compared to September 2009 levels of 121.4%,
113.5% and 104.7% respectively. The
October 2010 overcollateralization levels do not reflect the principal
payment of $22.6 million to the Class A-1 and Class
A-2 Notes' holders on the October 18, 2010 payment
date.
Moody's also notes that the deal has benefited from improvement in the
credit quality of the underlying portfolio since the last rating action.
Based on the October 2010 trustee report, the weighted average rating
factor is 2672 compared to 2822 in September 2009, and securities
rated Caa1 or CCC+ and below make up approximately 1% of the
underlying portfolio versus 9.6% in September 2009.
The deal also experienced a decrease in defaults. In particular,
the dollar amount of defaulted securities has decreased to about $3
million from approximately $23 million in September 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 and principal proceeds of $204.9
million , defaulted par of $2.8 million, weighted
average default probability of 21.47% (implying a WARF of
3447), a weighted average recovery rate upon default of 43.3%,
and a diversity score of 51. 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.
NYLIM Flatiron CLO 2003-1Ltd., issued in July of 2003,
is a collateralized loan obligation backed primarily by a portfolio of
senior secured loans.
The principal methodology used in this rating was the "Moody's Approach
to Rating Collateralized Loan Obligations" published in August 2009.
Other methodologies and factors that may have been considered in the process
of rating this issuer can also be found on Moody's website.
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 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 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 losses), assuming
that all other factors are held equal:
Moody's Adjusted WARF -- 20% (2758)
Class A-1: 0
Class A-2: 0
Class B: +1
Class C: +2
Class D-1: +2
Class D-2: +2
Moody's Adjusted WARF + 20% (4136)
Class A-1: 0
Class A-2: 0
Class B: -2
Class C: -2
Class D-1: -1
Class D-2: -1
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 losses), assuming that all other factors are held
equal:
Moody's Adjusted WARR + 2% (45.31%)
Class A-1: 0
Class A-2: 0
Class B: 0
Class C: 0
Class D-1: +1
Class D-2: +1
Moody's Adjusted WARR - 2% (41.31%)
Class A-1: 0
Class A-2: 0
Class B: 0
Class C: -1
Class D-1: 0
Class D-2: 0
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) 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 deals' 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.
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 satisfactory for the purposes of maintaining a credit rating.
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.
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
Raina Patel
Associate Analyst
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Rudolph Bunja
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.
Moody's upgrades the ratings of notes issued by NYLIM Flatiron CLO 2003-1Ltd.
