Nov 29 -
-- We have conducted our performance review of RMF Euro CDO IV.
-- Following our review, we have affirmed our ratings on the class I, II, III, IVA, and IVB notes.
-- At the same time, we have lowered our rating on the class V notes.
-- RMF Euro CDO IV is a cash flow CLO transaction that closed in May 2006. Its reinvestment period ended in May 2012.
Standard & Poor's Ratings Services today affirmed our ratings on the class I, II, III, IVA, and IVB notes issued by RMF Euro CDO IV PLC. At the same time, we lowered our rating on the class V notes (see list below).
Today's rating actions follow our assessment of the transaction's performance using data from the latest available trustee report, dated Oct. 8, 2012.
RMF Euro CDO IV has been amortizing since the end of its reinvestment period in May 2012. Since the last rating action we took in the transaction, on Oct. 18, 2011, the aggregate collateral balance has decreased by 4.26% to EUR414.5 million from EUR433.0 million (see "Ratings Affirmed On All Classes Of Notes In RMF Euro CDO IV Following Review," published on Oct. 18, 2011).
We subjected the capital structure to a cash flow analysis to determine the break-even default rate for each rated class at each rating level. In our analysis, we used the reported portfolio balance that we consider to be performing (EUR410,692,289), the current weighted-average spread, and the weighted-average recovery rates that we considered appropriate. We incorporated various cash flow stress scenarios using alternative default patterns, and levels, in conjunction with different interest and currency stress scenarios.
From our analysis, we have observed that EUR9.3 million of the class I notes have paid down since our last rating action. We have also observed that overcollateralization test results, the credit quality of the pool, and credit enhancement remained stable since our October 2011 rating action. We have also noted an increase in the weighted-average spread to 402 basis points (bps) from 345 bps over the same period.
During our review, we observed that non-euro-denominated assets made up 2.80% of the aggregate collateral balance. These assets are hedged under a cross-currency swap agreement. In our cash flow analysis, we considered scenarios where the hedging counterparty does not perform and where the transaction is therefore exposed to changes in currency rates.
In our opinion, the credit enhancement available to the class I and II notes is consistent with their current ratings, taking into account the results of our credit and cash flow analysis and the application of our 2012 counterparty criteria (see "Counterparty Risk Framework Methodology And Assumptions," published on May 31, 2012). We have therefore affirmed our ratings on the class I and II notes.
Our ratings on the class III, IVA, and IVB notes are lower than the ratings on any of the counterparties in the transaction. Therefore, applying our 2012 counterparty criteria would not constrain these ratings. We have affirmed our ratings on the class III, IVA, and IVB notes because our analysis indicates that the credit enhancement available to these notes is consistent with the ratings currently assigned.
We have lowered to 'B+ (sf)' from 'BB (sf)' our rating on the class V notes because our rating is constrained by the application of the largest obligor default test. This is a supplemental stress test that we introduced in 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). The results of our stress test showed that the level of credit enhancement available to the class V notes would be limited if the largest obligor were to default, when we assumed a recovery rate of 5%.
RMF Euro CDO IV PLC is a cash flow collateralized loan obligation transaction that securitizes loans to primarily speculative-grade corporate firms. The transaction closed in May 2006 and is managed by Pemba Credit Advisers.
RELATED CRITERIA AND RESEARCH
All articles listed below are available on RatingsDirect on the Global Credit Portal.
-- 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
-- Transaction Update: RMF Euro CDO IV PLC, Dec. 22, 2011
-- Global Structured Finance Scenario And Sensitivity Analysis: The Effects Of The Top Five Macroeconomic Factors, Nov. 4, 2011
-- Ratings Affirmed On All Classes Of Notes In RMF Euro CDO IV Following Review, Oct. 18, 2011
-- Nonsovereign Ratings That Exceed EMU Sovereign Ratings: Methodology And Assumptions, June 14, 2011
-- Credit Rating Model: Extreme Value Theory Foreign Exchange Model, Aug. 17, 2010
-- Credit Rating Model: S&P Cash Flow Evaluator, Aug. 17, 2010
-- Update To Global Methodologies And Assumptions For Corporate Cash Flow And Synthetic CDOs, Sept. 17, 2009
-- Surveillance Methodology For Global Cash Flow And Hybrid CDOs Subject To Acceleration Or Liquidation After An EOD, Sept. 2, 2009
-- Understanding Standard & Poor's Rating Definitions, June 3, 2009
-- General Cash Flow Analytics for CDO Securitizations, Aug. 25, 2004
RMF Euro CDO IV PLC
EUR444 Million Fixed- And Floating-Rate Notes
V B+ (sf) BB (sf)
I AA+ (sf)
II A+ (sf)
III BBB+ (sf)
IVA BB+ (sf)
IVB BB+ (sf)