(The following statement was released by the rating agency)
Nov 08 -
-- Following a credit and cash flow analysis, we have affirmed our ‘AA+ (sf)’ rating on Harbourmaster CLO 6’s class A1 notes
-- Harbourmaster CLO 6 is a cash flow CLO transaction that closed in November 2005 and securitizes loans to primarily speculative-grade corporate firms. The reinvestment period for this transaction ended in January 2011.
Standard & Poor’s Ratings Services today affirmed its ‘AA+ (sf)’ credit rating on Harbourmaster CLO 6 B.V.’s class A1 notes.
Today’s rating action follows our assessment of the transaction’s performance and takes into account recent developments in the transaction.
For our review of the transaction’s performance, we used data from the trustee report dated Sept. 28, 2012, in addition to our cash flow analysis. We have considered recent developments in the transaction and have applied our 2012 counterparty criteria (see “Counterparty Risk Framework Methodology and Assumptions,” published on May 31, 2012, on RatingsDirect on the Global Credit Portal), as well as our cash flow criteria (see “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 negative rating migration in the credit quality of the portfolio since we last reviewed the transaction (see “Transaction Update: Harbourmaster CLO 6 B.V.,” published on April 1, 2010).For example, we have observed an increase in the proportion of assets that we consider to be rated in the ‘CCC’ category (‘CCC+', ‘CCC’, and ‘CCC-') to 12.52% from 11.84%. At the same time, we have observed a decrease in the proportion of defaulted assets (those rated ‘CC’, ‘SD’ [selective default], and ‘D’) to 0.43% from 3.12%.
Our analysis indicates that credit enhancement for the class A1 notes and the weighted-average spread earned on the collateral pool have increased since we last reviewed the transaction.
Our analysis also indicates that the weighted-average maturity of the portfolio since our last transaction update has slightly decreased, which has led to a small reduction in our scenario default rates (SDR) for all rating categories.
We subjected the capital structure to a cash flow analysis to determine the break-even default rate for each rated tranche. In our analysis, we have used the reported portfolio balance, weighted-average spread, and weighted-average recovery rates that we consider to be appropriate. We have incorporated various cash flow stress scenarios, using alternative default patterns, levels, and timings for each liability rating category (‘AAA’, ‘AA’, and ‘BBB’ ratings), in conjunction with different interest rate stress scenarios.
At closing, Harbourmaster CLO 6 entered into derivative transactions (swap and option) to mitigate currency risks in the transaction.
We consider that the documentation for these derivatives does not fully reflect our counterparty criteria. We conducted our cash flow analysis assuming that the transaction does not benefit from the support of swap and option.
In addition, about 20.39% of the assets are located in European Economic and Monetary Union (EMU or eurozone) countries that we rate ‘BBB+’ or lower: the Republic of Italy (BBB+/Negative/A-2; unsolicited), the Kingdom of Spain(BBB-/Negative/A-3), and the Republic of Ireland (BBB+/Negative/A-2). In line with our criteria for nonsovereign ratings that exceed EMU sovereign ratings, we only give benefit of up to 10% of the aggregate collateral balance to the assets located in countries rated ‘BBB+’ or lower (see “Nonsovereign Ratings That Exceed EMU Sovereign Ratings: Methodology And Assumptions,” published on June 14, 2011).
We have determined that, under this scenario, the class A1 notes would not be able to achieve a ‘AAA (sf)’ rating. However, the cash flow results are commensurate with the current rating.
We have also applied the largest obligor default test, a supplemental stress test that we introduced as part of our criteria update (see “Update to Global Methodologies and Assumptions for Corporate Cash Flow and Synthetic CDOs,” published on Sept. 17, 2009). The test aims to measure the effect on ratings of defaults of a specified number of largest obligors in the portfolio with particular ratings, assuming 5% recoveries. In addition, we applied the largest industry default test, another of our supplemental stress tests. The rating on the class A1 notes is not constrained by the supplemental stress test result.
-- Counterparty Risk Framework Methodology and Assumptions, May 31, 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
-- Nonsovereign Ratings That Exceed EMU Sovereign Ratings: Methodology And Assumptions, June 14, 2011
-- Transaction Update: Harbourmaster CLO 6 B.V., April 1, 2010
-- 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 CLO Performance Index Report, published monthly