(The following statement was released by the rating agency)
Nov 14 -
-- Today’s rating actions follow a review of the performance of Gate SME CLO 2006-1 (Gate 2006), and are primarily based on our assessment of the concentration risks inherent in the portfolio. We have therefore lowered our ratings on all classes of notes.
-- The GATE SME CLO platform securitizes loans originated by Deutsche Bank AG and granted to predominantly German small and midsize enterprises. Gate 2006 closed in October 2006 and was the fourth transaction issued under the GATE SME CLO platform.
-- Credit enhancement to the credit-linked notes is provided by subordination.
-- These ratings are based on our criteria for rating European SME securitizations. However, these criteria are under review. As a result of this review, our future European SME securitization criteria may differ from the current criteria. The criteria change may affect the ratings on all outstanding notes in this transaction.
Standard & Poor’s Ratings Services today lowered its ratings on the class A, B, C, D, and E floating rate credit-linked notes issued by GATE SME CLO 2006-1 Ltd. (Gate 2006).
Today’s actions reflect our assessment of the performance of the transaction, and are primarily based on our assessment of the concentration risk inherent in the portfolio. We have based our analysis on the information report and loan-level data, both as of Sept. 28, 2012, provided to us by the originator.
Our credit analysis for this type of transaction is primarily based on stochastic default analysis (using CDO Evaluator) as well as additional stress tests that include scenarios in which the largest obligors default with very low recoveries. These tests indicate that the class A notes would likely experience a principal shortfall if more than the top two obligor groups were to default. According to the stress tests, the class B, C, and D notes could sustain a default by the largest obligor group, while for the class E notes, available credit enhancement is not sufficient to sustain the default of the largest obligor group. Compared with our last review, this represents a worsening in coverage levels across the capital structure by one obligor group.