(The following statement was released by the rating agency)
Jan 22 -
-- We have reviewed F.A.B. CBO 2002-1, based on recent transaction developments observed in the December 2012 trustee report, and we have performed our credit and cash flow analysis based on the application of our relevant criteria.
-- Following our review, we have raised our ratings on the class A-1 and A-2 notes.
-- At the same time, we have affirmed our rating on the class B notes.
-- F.A.B. CBO 2002-1 is a CDO transaction backed by pools of structured finance assets.
Standard & Poor’s Ratings Services today raised its credit ratings on F.A.B. CBO 2002-1 B.V.’s class A-1 and A-2 notes. At the same time, we have affirmed our rating on the class B notes (see list below).
Today’s rating actions follow our assessment of the transaction’s performance, based on recent transaction developments observed in the trustee report (dated Dec. 5, 2012), and our credit and cash flow analysis based on the application of our relevant criteria.
Since our previous review of this transaction on April 12, 2012, we have observed further deleveraging of the senior notes, which has resulted in increased credit enhancement for the class A-1 notes (see “Transaction Update: F.A.B. CBO 2002-1 B.V.”). With higher defaults since our previous review, the available credit enhancement for the junior classes of notes has reduced. The weighted-average spread earned on the collateral pool has increased to 1.7% from 1.5% in April 2012. All par coverage tests comply with the required triggers under the transaction documents.
There are fewer investment-grade assets in the pool than at our previous review, which is mainly due to pay downs. Assets rated in the ‘CCC’ category (‘CCC+', ‘CCC’, and ‘CCC-') have also reduced. Among other things, these factors have reduced the scenario default rates (SDRs) at each rating level compared with our previous review (see “Credit Rating Model: CDO Evaluator 6.0,” published on March 19, 2012).
We have subjected the capital structure to our cash flow analysis, based on the methodology and assumptions outlined in our 2012 and 2009 collateralized debt obligation (CDO) criteria, to determine the break-even default rate (BDR) at each rating level (see “Global CDOs Of Pooled Structured Finance Assets: Methodology And Assumptions,” published on Feb. 21, 2012, and “Update To Global Methodologies And Assumptions For Corporate Cash Flow And Synthetic CDOs,” published on Sept. 17, 2009).
We used the reported portfolio balance that we considered to be performing, the principal cash balance (if any), the weighted-average spread, and the weighted-average recovery rates that we considered to be appropriate. We incorporated various cash flow stress scenarios, using various default patterns, in conjunction with different interest rate stress scenarios.
We used CDO Evaluator 6.0.1 to generate SDRs at each rating level to help assess the credit risk of the collateral pool. We then compared these SDRs with their respective BDRs.
Taking into account the observations outlined above and the results of our cash flow analysis, we consider that the levels of credit enhancement available to the class A-1 and A-2 notes are commensurate with higher ratings than those currently assigned. We have therefore raised our ratings on the class A-1 and A-2 notes.
The largest obligor test and largest industry test are two supplemental stress tests that we introduced in our 2012 CDO criteria. These tests address event and model risk that might be present in the transaction and assess whether a CDO tranche has sufficient credit enhancement (not including excess spread) to withstand specified combinations of underlying asset defaults in addition to our cash flow analysis. The class A-1 and A-2 notes pass these supplemental tests at their ‘A- (sf)’ and ‘CCC+ (sf)’ rating levels, respectively.
As at our previous review, there is no credit enhancement available for the class B notes (the most junior class in the capital structure). The maximum rating that this class of notes can achieve under our supplemental stress tests is ‘CCC- (sf)', which is also supported by our cash flow analysis. We have therefore affirmed our ‘CCC- (sf)’ rating on the class B notes.
We have analyzed counterparty risk by applying our 2012 counterparty criteria (see “Counterparty Risk Framework Methodology And Assumptions,” published on Nov. 29, 2012). The counterparty agreements comply with the requirements outlined in the criteria.
F.A.B. CBO 2002-1 is a CDO transaction backed by pools of structured finance assets, which closed in April 2002. The reinvestment period ended in June 2007 and since then all scheduled principal proceeds are used towards payment of notes in accordance with the priority of payments.
-- S&P Announcement: CDO Evaluator Version 6.0.1 Released, Aug. 7, 2012
-- Transaction Update: F.A.B. CBO 2002-1 B.V., April, 12, 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
EUR309.5 Million Asset-Backed Floating-Rate Notes
A-1 A- (sf) BBB+ (sf)
A-2 CCC+ (sf) CCC- (sf)
B CCC- (sf)