USD $65 million of debt securities affected
New York, March 11, 2011 -- Moody's Investors Service announced today that it has upgraded the ratings
of the following notes issued by Primus CLO II, Ltd.:
U.S.$8,500,000 Class B Second Priority
Floating Rate notes Due 2021, Upgraded to A2 (sf); previously
on July 22, 2010 Upgraded to A3 (sf);
U.S.$31,500,000 Class C Third Priority
Deferrable Floating Rate notes Due 2021, Upgraded to Ba1 (sf);
previously on July 22, 2010 Upgraded to Ba2 (sf);
U.S.$10,500,000 Class D Fourth Priority
Deferrable Floating Rate notes Due 2021, Upgraded to B1 (sf);
previously on November 23, 2010 Caa1 (sf) Placed Under Review for
US. $15,500,000 Class E Fifth Priority Floating
Rate Notes Due 2021 (current balance U.S. $14,645,606),
Upgraded to Caa3 (sf); previously on November 23, 2010 Ca (sf)
Placed Under Review for Possible Upgrade.
According to Moody's, the rating actions taken on the notes result
primarily from an increase in the transaction's overcollateralization
ratios since the rating action in July 2010. The overcollateralization
ratios of the rated notes have improved since the rating action in July
2010 and are currently in compliance. The Class A/B, Class
C, Class D and Class E overcollateralization ratios are reported
at 122.687%, 110.949%, 107.520%
and 103.076%, respectively, versus June 2010
levels of 120.56%, 109.025%, 105.656
% and 101.472%, respectively. As of
the February 2011 trustee report, defaulted and deferred interest
assets totaled $1.49 million versus $12.2
million in June 2010. Moody's also notes that the credit profile
of the underlying portfolio has been relatively stable since the July
2010 rating action. Based on the February 2011 trustee report,
the weighted average rating factor is 2315 compared to 2329 in June 2010.
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 $365
million, defaulted par of $1.49 million, a weighted
average default probability of 26.97% (implying a WARF of
3488), a weighted average recovery rate upon default of 42.79%,
and a diversity score of 65. 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.
Primus CLO II Ltd., issued in July 2007, 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 220.127.116.11 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
Moody's Adjusted WARF -- 20% (2790)
Class A: +2
Class B: +2
Class C: +2
Class D: +2
Class E: +2
Moody's Adjusted WARF + 20% (4185)
Class A: -2
Class B: -2
Class C: -1
Class D: -4
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 manager's investment strategy and behaviour 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) 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.
2) 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 spread,
weighted average coupon, and diversity score. However,
as part of the base case, Moody's considered spread levels
higher than the covenant levels due to the large difference between the
reported and covenant levels.
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
Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's upgrades the ratings of notes issued by Primus CLO II, Ltd.
250 Greenwich Street
New York, NY 10007