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February 15, 2008 |
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HALYARD CDO I: Credit Deterioration Cues Moody's to Cut Ratings Moody's Investors Service downgraded the ratings of five classes of notes issued by Halyard CDO I p.l.c. and has left four classes on review for downgrade. Halyard CDO I p.l.c. is a partially-funded managed CDO of asset backed securities. Halyard may either buy cash obligations or enter into pay-as-you-go credit default swaps referencing mezzanine asset backed securities. Currently the transaction has 71% exposure (69 assets) to US subprime RMBS and 29% (18 assets) to CDO of ABS. About 4% of assets are classified as defaulted. The rating actions reflect deterioration in the credit quality of the underlying portfolio, as well as the occurrence on Feb. 8, 2008, as reported by the Trustee, of an event of default caused by a failure of the Class A Over-collateralization Ratio to be greater than or equal to 100%. Recent ratings downgrades on the underlying portfolio caused ratings-based haircuts to affect the calculation of over- collateralization. Thus, the Class A Over-collateralization Ratio failed to meet the required level. During the occurrence and continuance of an Event of Default, controlling creditors of the issuer may be entitled to direct the Trustee to take particular actions with respect to the underlying collateral securities and the Notes. The rating downgrades taken reflect the increased expected loss associated with each tranche. Losses are attributed to diminished credit quality on the underlying portfolio. The severity of losses of certain tranches may be different, however, depending on the timing and choice of remedy to be pursued. Because of this uncertainty, the ratings assigned to Class A, Class B, Class C and the Class D Notes remain on review for further possible action. These rating actions are: (1) US$101,250,000 Class A Senior Floating Rate Notes due 2051 -- Current Rating: Ba3, on review for downgrade -- Prior Rating: Aaa, on review for downgrade (2) US$41,250,000 Class B Senior Floating Rate Notes due 2051 -- Current Rating: B1, on review for downgrade -- Prior Rating: Aa2, on review for downgrade (3) US$15,000,000 Class C Mezzanine Floating Rate Deferrable Notes due 2051 -- Current Rating: B3, on review for downgrade -- Prior Rating: A1, on review for downgrade (4) US$30,000,000 Class D Mezzanine Floating Rate Deferrable Notes due 2051 -- Current Rating: Caa1, on review for downgrade -- Prior Rating: Baa2, on review for downgrade (5) US$13,125,000 Class E Mezzanine Floating Rate Deferrable Notes due 2051 -- Current Rating: C -- Prior Rating: Caa3, on review for downgrade |
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