USD $140.3 million of debt securities affected
New York, July 19, 2011 -- Moody's Investors Service announced today that it has upgraded the ratings
of the following notes issued by Atrium II:
U.S. $185,000,000 Class A-1 Floating
Rate Notes Due 2016 (current balance of $100,281,072),
Upgraded to Aaa (sf); previously on June 22, 2011, Aa1
(sf) Placed Under Review for Possible Upgrade;
U.S. $12,000,000 Class A-2a Floating
Rate Notes Due 2016, Upgraded to Aa1 (sf); previously on June
22, 2011, A2 (sf) Placed Under Review for Possible Upgrade;
U.S. $5,000,000 Class A-2b Fixed
Rate Notes Due 2016, Upgraded to Aa1 (sf); previously on June
22, 2011, A2 (sf) Placed Under Review for Possible Upgrade;
U.S. $11,000,000 Class B Deferrable Floating
Rate Notes Due 2016, Upgraded to Baa1 (sf); previously on June
22, 2011, Ba1 (sf) Placed Under Review for Possible Upgrade;
U.S. $6,000,000 Class C-1 Floating
Rate Notes Due 2016, Upgraded to Ba3 (sf); previously on June
22, 2011, Caa1 (sf) Placed Under Review for Possible Upgrade;
and
U.S. $6,000,000 Class C-2 Fixed
Rate Notes Due 2016, Upgraded to Ba3 (sf); previously on June
22, 2011, Caa1 (sf) Placed Under Review for Possible Upgrade.
RATINGS RATIONALE
According to Moody's, the rating actions taken on the notes
are primarily a result of applying Moody's revised CLO assumptions described
in "Moody's Approach to Rating Collateralized Loan Obligations"
published in June 2011. The primary changes to the modeling assumptions
include (1) a removal of the temporary 30% default probability
macro stress implemented in February 2009 as well as (2) increased BET
liability stress factors and increased recovery rate assumptions.
The actions also reflect consideration of delevering of the senior notes
since the rating action in October 2010. Moody's notes that
the Class A-1 notes have been paid down by approximately $52.6
million since the rating action in October 2010. As a result of
the delevering, the overcollateralization ratios have increased
since the rating action in October 2010. Based on the latest trustee
report dated June 7, 2011, the Class A, Class B,
and Class C overcollateralization ratios are reported at 131.8%,
120.5%, and 110.2%, respectively,
versus September 2010 levels of 121.7%, 114.3%,
and 107.2%, respectively, and all related overcollateralization
tests are currently in compliance.
Additionally, Moody's notes that the underlying portfolio
includes a number of investments in securities that mature after the maturity
date of the notes. Based on the June 2011 trustee report,
reference securities that mature after the maturity date of the notes
currently make up approximately 18.19% of the underlying
reference portfolio. 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" published
in June 2011, 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 $143.57 million, defaulted par
of $5.07 million, a weighted average default probability
of 16.92% (implying a WARF of 2852), a weighted average
recovery rate upon default of 48.67%, 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.
Atrium II, issued in December 2003, 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 June 2011.
Please see the Research & Ratings page on www.moodys.com
for a copy of this methodology .
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 June 2011.
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 2013 and 2015 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: A 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 bond and loan market and/or collateral sales by the manager,
which may have significant impact on the notes' ratings.
2) 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
For ratings issued on a program, series or category/class of debt,
this announcement provides relevant regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides relevant regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides relevant regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
Information sources used to prepare the rating are the following:
parties involved in the ratings, public information, and confidential
and proprietary Moody's Investors Service information.
Moody's did not receive or take into account a third party assessment
on the due diligence performed regarding the underlying assets or financial
instruments related to the monitoring of this transaction in the past
six months.
Moody's Investors Service considers the quality of information available
on the rated entity, obligation or credit satisfactory for the purposes
of issuing a rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a 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 Moody's Rating Symbols and Definitions on the Rating Process
page on www.moodys.com for further information on the meaning
of each rating category and the definition of default and recovery.
Please see ratings tab on the issuer/entity page on www.moodys.com
for the last rating action and the rating history.
The date on which some ratings were first released goes back to a time
before Moody's ratings were fully digitized and accurate data may not
be available. Consequently, Moody's 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 www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
New York
Cari Li
Asst Vice President - Analyst
Structured Finance Group
Moody's Investors Service, Inc.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Rudolph Bunja
Senior Vice President
Structured Finance Group
Moody's Investors Service, Inc.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's upgrades the ratings of six classes of CLO notes issued by Atrium II