Moody's also affirms the ratings on EUR 58.6 M of notes
London, 30 November 2018 -- Moody's Investors Service ("Moody's") has upgraded the ratings on the
following notes issued by Adagio III CLO P.L.C.:
....EUR28.5M Class D Senior Subordinated
Deferrable Floating Rate Notes due 2022, Upgraded to Aa2 (sf);
previously on May 2, 2018 Upgraded to A2 (sf)
....EUR17.5M (Current Outstanding Balance
EUR 15.8M) Class E Senior Subordinated Deferrable Floating Rate
Notes due 2022, Upgraded to Ba1 (sf); previously on May 2,
2018 Affirmed Ba2 (sf)
Moody's Investors Service ("Moody's") affirmed the ratings on the following
notes issued by Adagio III CLO P.L.C.:
....EUR38.3M (current outstanding amount
EUR0.7M) Class A1B Senior Floating Rate Notes due 2022, Affirmed
Aaa (sf); previously on May 2, 2018 Affirmed Aaa (sf)
....EUR150M (current outstanding amount EUR0.6M)
Class A3 Senior Floating Rate Notes due 2022, Affirmed Aaa (sf);
previously on May 2, 2018 Affirmed Aaa (sf)
....EUR25.8M Class B Senior Floating
Rate Notes due 2022, Affirmed Aaa (sf); previously on May 2,
2018 Affirmed Aaa (sf)
....EUR31.5M Class C Senior Subordinated
Deferrable Floating Rate Notes due 2022, Affirmed Aaa (sf);
previously on May 2, 2018 Upgraded to Aaa (sf)
....EUR5M Class U Combination Notes due 2022,
Affirmed Aa2 (sf); previously on May 2, 2018 Affirmed Aa2 (sf)
Adagio III CLO P.L.C., issued in August 2006,
is a collateralised loan obligation (CLO) backed by a portfolio of mostly
high-yield senior secured European and US loans. The portfolio
is managed by AXA Investment Managers Paris. The transaction's
reinvestment period ended in September 2013.
RATINGS RATIONALE
The rating actions on the notes are primarily a result of the deleveraging
of the classes A1B, A2 and A3 notes following amortisation of the
underlying portfolio since the last rating action in May 2018.
The classes A1B, A2 and A3 notes have paid down by approximately
EUR 45.26 million (21.73% of the aggregate classes
A1B, A2 and A3 original balance) since the last rating action in
May 2018. As a result of the deleveraging, over-collateralisation
(OC) has increased across the capital structure. According to the
trustee report dated 31 October 2018 the Class A/B, Class C,
Class D and Class E OC ratios are reported at 429.88%,
199.25%, 134.14% and 113.52%
compared to 29 March 2018 levels of 226.52%, 157.89%,
123.92% and 110.69%, respectively.
Moody's rating of the combination notes addresses only the ultimate receipt
of the combination notes rated balance by the holders of the combination
notes. Moody's rating of the combination notes does not address
any other payments or additional amounts that a holder of the combination
notes may receive pursuant to the underlying documents. For the
Class U notes, the "rated balance" at any time is equal
to the principal amount of the combination note on the issue minus the
sum of all payments made from the issue date to such date, of either
interest or principal. The rated balance will not necessarily correspond
to the outstanding notional amount reported by the trustee. The
Class U note is backed by "Obligation Assimilable du Trésor"
securities issued by the French treasury which have been stripped ("OAT
Strips") and the rating of the Class U note is a look-through to
the rating of the Government of France. Stripping consists of separating
a bond's interest and principal payments.
The key model inputs Moody's uses in its analysis, such as
par, weighted average rating factor, diversity score and the
weighted average recovery rate, are based on its published methodology
and could differ from the trustee's reported numbers. In its base
case, Moody's analysed the underlying collateral pool as having
a performing par of EUR 85.07 million and principal proceeds balance
of EUR 31.9 million, no defaulted assets, a weighted
average default probability of 16.14% (consistent with a
WARF of 2704 over a weighted average life of 3.28 years),
a weighted average recovery rate upon default of 48.48%
for a Aaa liability target rating, a diversity score of 12 and a
weighted average spread of 3.78%.
The default probability derives from the credit quality of the collateral
pool and Moody's expectation of the remaining life of the collateral
pool. The estimated average recovery rate on future defaults is
based primarily on the seniority of the assets in the collateral pool.
In each case, historical and market performance and a collateral
manager's latitude to trade collateral are also relevant factors.
Moody's incorporates these default and recovery characteristics
of the collateral pool into its cash flow model analysis, subjecting
them to stresses as a function of the target rating of each CLO liability
it is analysing.
Methodology Underlying the Rating Action:
The principal methodology used in these ratings was "Moody's Global Approach
to Rating Collateralized Loan Obligations" published in August 2017.
Please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
The Credit Rating for Adagio III CLO P.L.C. was assigned
in accordance with Moody's existing Methodology entitled "Moody's Global
Approach to Rating Collateralized Loan Obligations" dated 31 August 2017.
Please note that on 14 November 2018, Moody's released a Request
for Comment, in which it has requested market feedback on potential
revisions to its Methodology for Collateralized Loan Obligations.
If the revised Methodology is implemented as proposed, the Credit
Rating on Adagio III CLO P.L.C. may be neutrally
affected. Please refer to Moody's Request for Comment,
titled "Proposed Update to Moody's Global Approach to Rating Collateralized
Loan Obligations" for further details regarding the implications
of the proposed Methodology revisions on certain Credit Ratings."
Factors that would lead to an upgrade or downgrade of the ratings:
This transaction is subject to a high level of macroeconomic uncertainty,
which could negatively affect the ratings on the note, in light
of uncertainty about credit conditions in the general economy.
CLO notes' performance may also be impacted either positively or
negatively by 1) the manager's investment strategy and behaviour
and 2) divergence in the legal interpretation of CDO documentation by
different transactional parties because of embedded ambiguities.
Additional uncertainty about performance is due to the following:
• Portfolio amortisation: The main source of uncertainty in
this transaction is the pace of amortisation of the underlying portfolio,
which can vary significantly depending on market conditions and have a
significant impact on the notes' ratings. Amortisation could
accelerate as a consequence of high loan prepayment levels or collateral
sales by the collateral manager or be delayed by an increase in loan amend-and-extend
restructurings. Fast amortisation would usually benefit the ratings
of the notes beginning with the notes having the highest prepayment priority.
• 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 that, at transaction
maturity, the liquidation value of such an asset will depend on
the nature of the asset as well as the extent to which the asset's
maturity lags that of the liabilities. Liquidation values higher
than Moody's expectations would have a positive impact on the notes'
ratings.
In addition to the quantitative factors that Moody's explicitly
modelled, qualitative factors are part of the rating committee's
considerations. These qualitative factors include the structural
protections in the transaction, its recent performance given the
market environment, the legal environment, specific documentation
features, the collateral manager's track record and the potential
for selection bias in the portfolio. All information available
to rating committees, including macroeconomic forecasts, input
from other Moody's analytical groups, market factors, and
judgments regarding the nature and severity of credit stress on the transactions,
can influence the final rating decision.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and sensitivity
analysis, see the sections Methodology Assumptions and Sensitivity
to Assumptions of the disclosure form.
The analysis relies on an assessment of collateral characteristics to
determine the collateral loss distribution, that is, the function
that correlates to an assumption about the likelihood of occurrence to
each level of possible losses in the collateral. As a second step,
Moody's evaluates each possible collateral loss scenario using a
model that replicates the relevant structural features to derive payments
and therefore the ultimate potential losses for each rated instrument.
The loss a rated instrument incurs in each collateral loss scenario,
weighted by assumptions about the likelihood of events in that scenario
occurring, results in the expected loss of the rated instrument.
Moody's quantitative analysis entails an evaluation of scenarios
that stress factors contributing to sensitivity of ratings and take into
account the likelihood of severe collateral losses or impaired cash flows.
Moody's weights the impact on the rated instruments based on its
assumptions of the likelihood of the events in such scenarios occurring.
For ratings issued on a program, series or category/class of debt,
this announcement provides certain 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 certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain 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.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
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.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Philippe Joly
Associate Lead Analyst
Structured Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Ian Perrin
Associate Managing Director
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
