USD $124 million of debt securities affected
New York, December 14, 2010 -- Moody's Investors Service announced today that it has upgraded the ratings
of the following notes issued by Olympic CLO I Ltd.:
U.S. $101,000,000 Class A-1L Floating
Rate Notes Due May 2016 (current outstanding balance of $44,484,132),
Upgraded to Aaa (sf); previously on November 23, 2010 A1 (sf)
Placed Under Review for Possible Upgrade;
U.S. $25,000,000 Class A-1LB Floating
Rate Notes Due May 2016, Upgraded to Aaa (sf); previously on
November 23, 2010 A2 (sf) Placed Under Review for Possible Upgrade;
U.S. $16,000,000 Class A-2L Floating
Rate Notes Due May 2016, Upgraded to Aa2 (sf); previously on
November 23, 2010 Baa2 (sf) Placed Under Review for Possible Upgrade;
U.S. $19,000,000 Class A-3L Floating
Rate Notes due May 2016, Upgraded to Baa2 (sf); previously
on November 23, 2010 Ba3 (sf) Placed Under Review for Possible Upgrade;
U.S. $15,000,000 Class B-1L Floating
Rate Notes due May 2016, Upgraded to B3 (sf); previously on
November 23, 2010 Ca (sf) Placed Under Review for Possible Upgrade;
U.S. $4,400,000 Class B-2L Floating
Rate Notes due May 2016, Upgraded to Caa3 (sf); previously
on November 23, 2010 C (sf) Placed Under Review for Possible Upgrade.
RATINGS RATIONALE
According to Moody's, the rating actions taken on the notes result
primarily from substantial amortization of the Class A-1LA and
Class A-1L Notes since the last rating action in June 2009.
The deal also benefited from improvement in the credit quality of the
underlying portfolio since the last rating action.
The overcollateralization ratios of the rated notes have improved as a
result of delevering of the Class A-1LA and Class A-1L Notes,
which were paid down by approximately $123 million or 62%
since the previous rating action in June 2009. As of the November
2010 trustee report, the Senior Class A, Class A, Class
B-1L, and Class B-2L overcollateralization ratios
are reported at 131.7%, 116.0%,
106.0%, and 103.5%, respectively,
versus May 2009 levels of 118.3%, 109.6%,
103.6%, and 95.4%, respectively,
and all related overcollateralization tests are currently in compliance.
Moody's expects delevering to continue as a result of the end of the deal's
reinvestment period 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 2605 compared to 3165 in May 2009,
and securities rated Caa1 and below make up approximately 8% of
the underlying portfolio versus 19.5% in May 2009.
The deal also experienced a decrease in defaults. In particular,
the dollar amount of defaulted securities reported by the trustee has
decreased to $6.0 million from approximately $24.9
million in May 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 $156.7
million , defaulted par of $8 million, weighted average
default probability of 23.12% (implying a WARF of 3415),
a weighted average recovery rate upon default of 41.31%,
and a diversity score of 42. 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.
Olympic CLO I Ltd., issued in March 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 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 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% (2732)
Class A-1L: 0
Class A-1LA: 0
Class A-1LB: 0
Class A-2L: +2
Class A-3L: +2
Class B-1L: +3
Class B-2L: +1
Moody's Adjusted WARF + 20% (4098)
Class A-1L: 0
Class A-1LA: 0
Class A-1LB: 0
Class A-2L: -1
Class A-3L: -2
Class B-1L: -3
Class B-2L: -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% (43.31%)
Class A-1L: 0
Class A-1LA: 0
Class A-1LB: 0
Class A-2L: +1
Class A-3L: +1
Class B-1L: 0
Class B-2L: 0
Moody's Adjusted WARR - 2% (39.31%)
Class A-1L: 0
Class A-1LA: 0
Class A-1LB: 0
Class A-2L: 0
Class A-3L: -1
Class B-1L: -2
Class B-2L: -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) 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.
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 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
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.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's upgrades the ratings of notes issued by Olympic CLO I Ltd.
