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Rating Action:

Moody's upgrades the ratings of notes issued by Rosemont CLO, Ltd.

20 Apr 2011

USD 39 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 Rosemont CLO, Ltd.:

US $18,000,000 Class B-1 Senior Secured Notes due 2013 (current outstanding balance of $14,556,788), Upgraded to Aaa (sf); previously on July 8, 2010 Upgraded to Aa1 (sf);

US $7,000,000 Class B-2 Senior Secured Notes due 2013 (current outstanding balance of $5,660,973), Upgraded to Aaa (sf); previously on July 8, 2010 Upgraded to Aa1 (sf);

US $13,200,000 Class C Senior Secured Notes due 2013, Upgraded to Aa2 (sf); previously on July 8, 2010 Upgraded to Baa2 (sf);

US $10,000,000 Class 1 Composite Securities due 2013 (current rated balance of $5,304,741), Upgraded to Aaa (sf); previously on July 8, 2010 Upgraded to A3 (sf);

US $3,000,000 Class 2 Composite Securities due 2013 (current rated balance of $583,847), Upgraded to A3 (sf); previously on August 4, 2009 Downgraded to B1 (sf).


According to Moody's, the rating actions taken on the notes result primarily from delevering of the transaction. The Class A notes have been fully paid down, and the Class B-1 and Class B-2 notes have been paid down by approximately $5 million in aggregate since the rating action in July 2010. As a result of the delevering, the overcollateralization ratios of the rated notes have improved. Based on April 2011 trustee report, the Class B, Class C, and Class D overcollateralization ratios are reported at 179.13%, 129.59%, and 103.56%, respectively, versus June 2010 levels of 143.15%, 118.86%, and 102.98%, respectively, and all related overcollateralization tests are currently in compliance.

Moody's also notes that the credit profile of the underlying portfolio has been relatively stable since the last rating action. In particular, as of the latest trustee report dated April 2011, the weighted average rating factor is currently 2805 compared to 2746 in the June 2010 report, and securities rated Caa1 or lower make up approximately 19.01% of the underlying portfolio versus 21.03% in June 2010. Additionally, defaulted securities total about $7.5 million of the underlying portfolio compared to $13.4 million 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 balance, including principal proceeds, of $43.7 million, defaulted par of $7.8 million, a weighted average default probability of 15.7% (implying a WARF of 3424), a weighted average recovery rate upon default of 45.0%, and a diversity score of 30. 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.

Rosemont CLO, Ltd., issued in January 2002, is a collateralized loan obligation backed primarily by a portfolio of senior secured loans.

The principal methodologies used in this rating were "Moody's Approach to Rating Collateralized Loan Obligations", published in August 2009, and "Using the Structured Note Methodology to Rate CDO Combo-Notes", published in February 2004.

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 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 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% (2739)

Class A: 0

Class B1: 0

Class B2: 0

Class C: +2

Combo 1: 0

Combo 2: +2

Moody's Adjusted WARF + 20% (4109)

Class A: 0

Class B1: 0

Class B2: 0

Class C: -2

Combo 1: 0

Combo 2: -2

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 deal's 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.

Further information on Moody's analysis of this transaction is available on


Information sources used to prepare the credit rating are the following: parties involved in the ratings, parties not 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 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 for further information.

Please see the Credit Policy page on 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
Adam Chmelynski
Associate 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
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's upgrades the ratings of notes issued by Rosemont CLO, Ltd.
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