TEXT-S&P rates Willow No. 2 (Cayman) series 7 credit-linked notes

Fri Jan 18, 2013 5:22am EST

Jan 18 -

OVERVIEW

-- We have assigned our 'A-' rating to Willow No. 2 (Cayman)'s series 7 notes.

-- The Willow No. 2 (Cayman) series 7 transaction is credit-linked to Dell Inc. as the reference entity under the credit default swap.

Standard & Poor's Ratings Services today assigned its 'A-' credit rating to Willow No. 2 (Cayman) Ltd.'s $20 million fixed-rate credit-linked secured limited-recourse notes series 7.

Willow No. 2 (Cayman) is a bankruptcy-remote special-purpose entity (SPE) incorporated as a segregated multi-issuance company with limited liability in September 2010 under Cayman law.

This transaction comprises credit-linked notes (CLNs) that reference debt issued by Dell Inc. via a credit default swap (CDS). On the issue date, the SPE entered into a swap with Barclays Bank PLC (A+/Negative/A-1). Under the terms of the swap, the SPE pays to the swap counterparty the note issuance proceeds and in return the swap counterparty will deliver eligible credit support to the issuer under the terms of a credit support annex. This eligible credit support can be cash denominated in U.S. dollars, British pounds sterling, yen, or euro, or can be sovereign debt of the U.S., U.K., Germany, or Japan.

Payments of interest and principal on the notes depend on payments by Barclays under the swap. On each interest payment date, Barclays will pay Willow the same amount of interest and principal that Willow is due to pay the noteholders on that date.

The Willow series 7 notes will pay interest semiannually at a fixed rate of 4.35% per year. Interest payment dates are the 20 June and 20 Dec. of each year, up to and including Dec. 20, 2022, which is the CLN's scheduled maturity date.

The transaction documents do not mitigate the counterparty risk under the swap, or the risk of the custodian's creditworthiness deteriorating. If a default, restructuring, or repudiation affected all four sovereigns, the transaction could redeem early, with a potential loss.

Therefore, our rating on the CLN is linked to the lower of the issuer credit rating on the following entities:

-- Barclays Bank PLC (A+/Negative/A-1), as swap counterparty.

-- Dell Inc. (A-/Stable/A-1), as reference entity.

-- Citibank N.A. (A/Negative/A-1), as custodian.

-- Highest rated entity of the following sovereigns, as asset issuers: Germany (AAA/Stable/A-1+, unsolicited ratings); U.S. (AA+/Negative/A-1+, unsolicited ratings); U.K. (AAA/Negative/A-1+, unsolicited ratings); and Japan (AA-/Negative/A-1+, unsolicited ratings).

Accordingly, in light of the 'A-' rating on Dell Inc., we have assigned an 'A-' rating to these notes.

RELATED CRITERIA AND RESEARCH

-- European Legal Criteria For Structured Finance Transactions, Aug. 28, 2008

-- Global Methodology for Rating Repackaged Securities, Oct. 16, 2012

-- Counterparty Risk Framework Methodology and Assumptions, Nov. 29, 2012

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