TEXT-S&P takes rating actions in Euro Atlantis CLO after review
Standard & Poor's Ratings Services today raised its credit ratings on Euro Atlantis CLO Ltd.'s class B and C notes. At the same time, we have affirmed our ratings on the class A and D notes (see list below).
Today's rating actions follow our credit and cash flow analysis, to assess the transaction's performance since our previous review on April 13, 2011 (see "Ratings Raised On Euro Atlantis CLO's Class A To D Notes").
as of OC
Current April as of
Rtg Rtg amount 2011 Current April
Class to from (mil. (mil. OC 2011 Interest
EUR) EUR) (%) (%) (%)
A AA-(sf) AA-(sf) 88.13 134.43 39.72 32.15 6mE+1.70
B A+(sf) A(sf) 11.40 11.40 31.93 26.40 6mE+3.25
C BBB+(sf) BBB(sf) 7.32 8.45 26.92 22.14 6mE+4.50
D BB+(sf) BB+(sf) 9.25 11.48 20.59 16.34 6mE+6.50
Sub. NR NR 42.40 42.40 0.00 0.00 N/A
OC--Overcollateralization = (aggregate performing assets balance + principal
cash balance - tranche balance [including tranche balance of all senior
tranches]) / (aggregate performing assets balance + principal cash balance).
6mE--Six-month EURIBOR (Euro Interbank Offered Rate).
Since our previous review in April 2011, we have observed that the class A notes have amortized to 51% of their original size. We have also observed that deferred interest on the class C and D notes has been fully repaid. As a result of these developments, the overcollateralization levels have increased for all of the rated classes of notes.
At the same time, in our opinion, the transaction has benefited from:
-- A reduction in the portfolio's weighted-average maturity to 3.35 years from 4.46 years; and
-- An increase in the portfolio's weighted-average spread to 3.17% from 2.55%.
This positive performance was somewhat mitigated by a higher concentration of the performing portfolio toward lower ratings. Assets rated 'B-' and below increased to 50% from 41% of the performing portfolio.
We subjected the notes to various cash flow scenarios incorporating different default patterns and interest rate curves, to determine each tranche's break-even default rate at each rating level.
KEY MODEL ASSUMPTIONS
Current April 2011
Collateral balance (mil. EUR) 146.21 198.14
Number of obligors 39 43
Weighted-average spread (%) 3.17 2.55
Asset swap counterparty rating A+ AA-
AAA WARR (%) 42.00 42.50
AA WARR (%) 46.50 47.00
A WARR (%) 50.50 51.00
BBB WARR (%) 54.50 55.00
BB WARR (%) 64.50 65.25
B/CCC WARR (%) 68.00 69.00
Portfolio WAM (years) 3.35 4.46
WARR--Weighted-average recovery rate.
JP Morgan Chase Bank N.A. (A+/Negative/A-1) currently provides currency hedging on 31% of the collateral balance. In our opinion, the downgrade provisions in this counterparty agreement do not fully comply with our 2012 counterparty criteria (see "Counterparty Risk Framework Methodology And Assumptions," published on May 31, 2012). Therefore, in rating scenarios above 'AA-', we have given no benefit to this hedge.
Our ratings on the class B and C notes were constrained by the application of the largest obligor default test, a supplemental stress test we introduced as part of our 2009 criteria update for corporate collateralized debt obligations (CDOs) (see "Update To Global Methodologies And Assumptions For Corporate Cash Flow And Synthetic CDOs," published on Sept. 17, 2009). None of the ratings was affected by the largest industry default test, another of our supplemental stress tests.
As a result of these developments, and following our credit and cash flow analysis, we have raised our ratings on the class B and C notes by one notch, and affirmed our ratings on the class A and D notes.
Euro Atlantis CLO is a cash flow CDO transaction backed by loans to speculative-grade corporate firms, which closed in June 2008. Pramerica Investment Management Inc.'s management of the portfolio is limited to the sale of defaulted or credit impaired assets.
RELATED CRITERIA AND RESEARCH
-- S&P Announcement: CDO Evaluator Version 6.0.1 Released, Aug, 7, 2012
-- Counterparty Risk Framework Methodology And Assumptions, May 31, 2012
-- Credit Rating Model: CDO Evaluator 6.0, March 19, 2012
-- European Structured Finance Scenario And Sensitivity Analysis: The Effects Of The Top Five Macroeconomic Factors, March 14, 2012
-- Global Structured Finance Scenario And Sensitivity Analysis: The Effects Of The Top Five Macroeconomic Factors, Nov. 4, 2011
-- Ratings Raised On Euro Atlantis CLO's Class A To D Notes, April 13, 2011
-- Credit Rating Model: S&P Cash Flow Evaluator, Aug. 17, 2010
-- Credit Rating Model: Extreme Value Theory Foreign Exchange Model, Aug. 17, 2010
-- Update To Global Methodologies And Assumptions For Corporate Cash Flow And Synthetic CDOs, Sept. 17, 2009
-- Understanding Standard & Poor's Rating Definitions, June 3, 2009
-- The Use Of Rating-Based Haircuts In Event Of Default Overcollateralization Tests For CDOs, March 19, 2008
-- CDO Spotlight: General Cash Flow Analytics for CDO Securitizations, Aug. 25, 2004
Euro Atlantis CLO Ltd.
EUR241.5 Million Floating-Rate And Subordinated Notes
B A+ (sf) A (sf)
C BBB+ (sf) BBB (sf)
A AA- (sf)
D BB+ (sf)