Today’s rating actions resolve these CreditWatch negative placements. We have reviewed the transaction’s performance and have performed a credit and cash flow analysis using data from the latest EUROMAX V ABS trustee report (dated Aug. 3, 2012) and the Dureve statement to noteholders report (dated Aug. 16, 2012). We have applied our 2012 CDO of SF criteria, and our 2012 counterparty criteria (see “Counterparty Risk Framework Methodology And Assumptions,” published on May 31, 2012).
We have subjected the capital structure to a cash flow analysis, based on the updated methodology and assumptions outlined in our 2012 CDO of SF criteria, to determine the break-even default rate (BDR) for each rated class of notes. We have also conducted a credit analysis to determine the scenario default rate (SDR) at each rating level, which we then compared with its respective BDR.
In our analysis, we used the portfolio balance that we considered to be performing, the weighted-average spread, and the weighted-average recovery rates that we considered to be appropriate. We incorporated various cash flow stress scenarios using our standard and additional default patterns, levels, and timings for each rating category assumed for each class of notes, in conjunction with different interest rate stress scenarios.
In accordance with the updated methodology and assumptions in our 2012 CDO of SF criteria, each class on notes now face higher losses, which has caused the respective BDRs to fall. Moreover, each class of notes now face a higher probability of default, based on our updated methodology, which has resulted in higher SDR levels. For example, our analysis shows that the SDR at the ‘AAA’ rating level is now 89.50%.
At closing, the issuer, entered into a custody agreement with the London branch of Citibank N.A. (A/Negative/A-1). We consider that the replacement language for the custodian does not fully reflect our 2012 counterparty criteria. We have therefore concluded that our ratings on the notes in this transaction cannot be any higher than our ‘A’ long-term issuer credit rating on Citibank. As a result, we have lowered to ‘A (sf)’ and removed from CreditWatch negative our ratings on the class A-1 and A-2, even though the results of our credit and cash flow analysis are commensurate with ‘AA+ (sf)’ and ‘A+ (sf)’ rating levels, respectively.
We have affirmed and removed from CreditWatch negative our ‘A- (sf)’ rating on the class B notes because we consider that the credit enhancement level remains commensurate with our current rating.
On the other hand, our credit and cash flow analysis under our 2012 CDO of SF criteria shows that the class C-1 notes’ BDRs are able to surpass SDR levels at no higher than the ‘BBB+’ rating level. We have therefore lowered to ‘BBB+ (sf)’ and removed from CreditWatch negative our rating on the class C-1 notes.
-- Counterparty Risk Framework Methodology And Assumptions, May 31, 2012
-- Ratings On 238 EMEA CDO Tranches Placed On CreditWatch Negative After Criteria Update, March 19, 2012
-- European Structured Finance Scenario And Sensitivity Analysis: The Effects Of The Top Five Macroeconomic Factors, March 14, 2012
-- Global CDOs Of Pooled Structured Finance Assets: Methodology And Assumptions, Feb. 21, 2012
-- Global Structured Finance Scenario And Sensitivity Analysis: The Effects Of The Top Five Macroeconomic Factors, Nov. 4, 2011
-- Update To Global Methodologies And Assumptions For Corporate Cash Flow And Synthetic CDOs, Sept. 17, 2009
-- The Use Of Rating-Based Haircuts In Event Of Default Overcollateralization Tests For CDOs, March 19, 2008
EUR181.561 Million Floating-Rate Notes
Ratings Lowered And Removed From CreditWatch Negative
A-1 A (sf) A+ (sf)/Watch Neg
A-2 A (sf) A+ (sf)/Watch Neg
C-1 BBB+ (sf) A- (sf)/Watch Neg
Rating Affirmed And Removed From CreditWatch Negative
B A- (sf)/Watch Neg