Jan 16 -
-- We have observed a deterioration in the transaction's performance.
-- We have therefore lowered our ratings on the class B and C notes.
-- At the same time, we have affirmed our ratings on all the other classes of notes.
-- Invesco Mezzano is a cash flow CLO transaction that closed on Oct. 30, 2007, with a
reinvestment period that ends in November 2013.
Standard & Poor's Ratings Services today lowered its credit ratings on Invesco Mezzano
B.V.'s class B and C notes. At the same time, we have affirmed our ratings on all other classes
of notes in this transaction (see list below).
Today's rating actions follow our assessment of the transaction's performance using data
from the trustee report dated Nov. 30, 2012, as well as a cash flow analysis. We have taken into
account recent developments in the transaction and reviewed the transaction under our 2012
counterparty criteria (see "Counterparty Risk Framework Methodology And Assumptions," published
on Nov. 29, 2012).
From our analysis, we have observed a fall in the aggregate collateral balance to EUR319.4
million from EUR327.9 million. This has decreased the credit enhancement available for all
classes of notes since our previous rating action on Oct. 5, 2011 (see "Transaction Update:
Invesco Mezzano B.V.").
The November 2012 trustee report indicates that the overcollateralization test results for
all classes have worsened. In addition, we have observed a deterioration in the credit quality
of the portfolio, such as an increase in defaulted assets (rated 'CC', C', 'SD' [selective
default], or 'D') to 2.3% from 0% and an increase in assets rated in the 'CCC' category ('CCC+',
'CCC', or 'CCC-') to 5.55% from 4.10%.
We have also observed that the weighted-average spread the portfolio generates has increased
to 3.63% from 3.20%, and that the weighted-average life has decreased to 4.2 years from 5.0
years. In addition, we note that the weighted-average recovery rates have decreased.
We subjected the capital structure to a cash flow analysis to determine the break-even
default rate for each rated class. In our analysis, we used the reported portfolio balance that
we consider to be performing, the current weighted-average spread and the weighted-average
recovery rates that we considered to be appropriate. We incorporated various cash flow stress
scenarios using alternative default patterns, levels, and timings for each liability rating
category, in conjunction with different interest stress scenarios.
Following our cash flow analysis, we consider the level of credit enhancement available to
the class B and C notes to be commensurate with lower ratings than those currently assigned. We
have therefore lowered our ratings on the class B notes to 'A- (sf)' from 'A (sf)' and on the
class C notes to 'BB+ (sf)' from 'BBB- (sf)'.
The credit support for the class A, D, and E notes is, in our opinion, commensurate with our
current ratings on these classes. We have therefore affirmed our ratings on the class A, D, and
Approximately 8% of the assets in the transaction's portfolio are non-euro-denominated,
while the liabilities are all euro-denominated. To mitigate the risk of foreign-exchange-related
losses, the issuer has entered into foreign exchange swap agreements with Morgan Stanley & Co
international PLC (A/Negative/A-1) as a swap counterparty. Under our 2012 counterparty
criteria, our analysis of the swap counterparty and its associated documentation indicates that,
absent other mitigants, it cannot support ratings on the notes that are higher than 'A+ (sf)'.
To assess the potential impact on our ratings, we have conducted our analysis without giving
benefit to the swap agreements. We concluded that, in this scenario, the class A notes would
only be able to achieve a 'A+ (sf)' rating.
Invesco Mezzano is a cash flow collateralized loan obligation (CLO) transaction that
securitizes loans to primarily speculative-grade corporate firms. The transaction closed in
October 2007 and is managed by Invesco Asset Management Ltd.
RELATED CRITERIA AND RESEARCH
-- Counterparty Risk Framework Methodology And Assumptions, Nov. 29, 2012
-- Nonsovereign Ratings That Exceed EMU Sovereign Ratings: Methodology And Assumptions, June
-- Update To Global Methodologies And Assumptions For Corporate Cash Flow And Synthetic
CDOs, Sept. 17, 2009
-- CDO Spotlight: General Cash Flow Analytics for CDO Securitizations, Aug. 25, 2004
-- 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
-- Transaction Update: Invesco Mezzano B.V., Oct. 5, 2011
Invesco Mezzano B.V.
EUR350.45 Million Senior And Deferrable Interest Floating-Rate Notes
B A- (sf) A (sf)
C BB+ (sf) BBB- (sf)
A A+ (sf)
D BB+ (sf)
E B+ (sf)