(The following statement was released by the rating agency)
March 14 -
-- We have assessed the performance of Duchess III CDO by applying our 2010 counterparty criteria and conducting credit and cash flow analyses.
-- Following our review and analysis of the transaction's performance, we have raised our ratings on the class A and B notes.
-- We have lowered our ratings on the class C-1 and C-2 notes.
-- We have affirmed our ratings on the class D-1 and D-2 notes.
-- Duchess III CDO is a cash flow CLO transaction that securitizes loans to primarily speculative-grade corporate firms.
Standard & Poor's Ratings Services today raised its credit ratings on Duchess III CDO S.A.'s class A and B notes. At the same time, we have lowered our ratings on the class C-1 and C-2 notes and affirmed our ratings on the class D-1 and D-2 notes (see list below).
Today's rating actions follow our assessment of the transaction's performance, and the application of our relevant criteria for transactions of this type.
For our review of the transaction's performance, we used data from the trustee report (dated Jan. 23, 2012), in addition to our cash flow analysis. We have taken into account recent developments in the transaction, and have applied our 2010 counterparty criteria, as well as our cash flow criteria (see "Counterparty And Supporting Obligations Methodology And Assumptions," published on Dec. 6, 2010, and "Update To Global Methodologies And Assumptions For Corporate Cash Flow And Synthetic CDOs," published on Sept. 17, 2009).
From our analysis, we have observed a small decline in the proportion of assets that we consider to be rated in the 'CCC' category ('CCC+', 'CCC', and 'CCC-'). However, the proportion of defaulted assets (rated 'CC', 'SD' [selective default], and 'D') have increased in the collateral pool since we last reviewed the transaction (see "Transaction Update: Duchess III CDO S.A.," published on April 16, 2010). The VFN notes paid down in May 2011, and 44.57% of the class A notes remains outstanding as of the January 2012 reports.
We have also noted an increase in the weighted-average spread earned on Duchess III's amortizing collateral pool. The senior overcollateralization test and class C overcollateralization test results are higher than in April 2010. However, the class D overcollateralization test continues to perform below trigger levels, as was the case during our last analysis. Since April 2010, the transaction has also experienced principal losses on the sale of defaulted assets, asset sales, and payment made toward class D notes from principal proceeds.