USD $186 million of debt securities affected
New York, April 20, 2011 -- Moody's Investors Service announced today that it has upgraded the ratings
of the following notes issued by OWS CLO I, Ltd.:
U.S. $235,500,000 Class A-1 Senior
Secured Notes due January 6, 2016 (current outstanding balance of
$131,838,102), Upgraded to Aaa (sf); previously
on March 17, 2010 Confirmed at Aa3 (sf);
U.S. $14,500,000 Class A-2 Senior
Secured Notes due January 6, 2016, Upgraded to A1 (sf);
previously on March 17, 2010 Confirmed at A3 (sf);
U.S. $3,000,000 Class X-1 Deferrable
Amortizing Senior Secured Notes due January 6, 2016 (current outstanding
balance of $1,741,685), Upgraded to A3 (sf);
previously on March 17, 2010 Confirmed at Ba1 (sf);
U.S. $11,500,000 Class X-2 Deferrable
Amortizing Senior Secured Notes due January 6, 2016 (current outstanding
balance of $6,633,491), Upgraded to A3 (sf);
previously on March 17, 2010 Confirmed at Ba1 (sf);
U.S. $14,000,000 Class B Deferrable Senior
Secured Notes due January 6, 2016, Upgraded to Ba1 (sf);
previously on March 17, 2010 Confirmed at B1 (sf);
U.S. $8,000,000 Class C Secured Notes
due January 6, 2016, Upgraded to B3 (sf); previously
on March 17, 2010 Confirmed at Caa3 (sf);
U.S. $8,500,000 Class D Subordinated
Secured Notes due January 6, 2016 (current outstanding balance of
$9,307,913), Upgraded to Caa3 (sf); previously
on April 6, 2009 Downgraded to Ca (sf).
RATINGS RATIONALE
According to Moody's, the rating actions taken on the notes result
primarily from the delevering of the Class A-1 Notes, which
have been paid down by approximately 37% or $76.0
million since the rating action in March 2010. As a result of the
delevering, the overcollateralization ratios have increased since
the rating action in March 2010. As of the latest trustee report
dated March 31, 2011, the Class A, Class B, Class
C, and Class D overcollateralization ratios are reported at 121.25%,
112.32%, 107.78%, and 102.88%,
respectively, versus January 2010 levels of 112.59%,
105.82%, 102.20%, and 98.50%,
respectively. Moody's also notes that the Class X-1,
X-2, B, and C Notes are no longer deferring interest
and that all previously deferred interest has been paid in full.
The Class D Notes have resumed paying interest but still carry a deferred
interest balance.
Moody's also notes that the credit profile of the underlying portfolio
has been relatively stable since the last rating action. Based
on the March 2011 trustee report, the weighted average rating factor
is 2265 compared to 2200 in January 2010. The deal also experienced
a decrease in defaults. In particular, the dollar amount
of defaulted securities has decreased to about $3 million from
approximately $9 million in January 2010.
While the transaction has benefited from delevering, Moody's notes
that the portfolio includes a number of investments in securities that
mature after the maturity date of the notes, primarily due to the
deal's participations in amend-to-extend offerings.
Based on Moody's calculation, securities that mature after
the maturity date of the notes currently make up approximately 17.3%
of the underlying portfolio, compared to approximately 2.7%
of the underlying portfolio in January 2010. 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" 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 balance
of $184 million, defaulted par of $6 million,
a weighted average default probability of 19.07% (implying
a WARF of 3075), a weighted average recovery rate upon default of
43.68%, and a diversity score of 46. 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.
OWS CLO I, Ltd., issued in November 2005, 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 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 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% (2460)
Class A-1: 0
Class A-2: +3
Class X-1: +2
Class X-2: +2
Class B: +2
Class C: +3
Class D: 0
Moody's Adjusted WARF + 20% (3690)
Class A-1: -1
Class A-2: -2
Class X-1: -2
Class X-2: -2
Class B: -1
Class C: -2
Class D: 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 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) 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 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.
3) 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.
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
Shana Sethi
Analyst
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Min Xu
Vice President - Senior Analyst
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 OWS CLO I Ltd.
