Moody’s summarizes second quarter CLO rating actions, revises CLO rating

London, 20 July 2009 -- Moody's Investors Service announced today that 
during the second quarter of 2009, it downgraded 510 CLO tranches of 93 
transactions, totaling approximately US$33 billion. Approximately 74% of 
the 180 Aaa-rated tranches that were reviewed during this period were 
downgraded, and the average magnitude of the downgrades was approximately 
3.6 notches (i.e. between Aa3 and A1 on average). Moody's also announced 
that due to significant credit deterioration in CLOs' underlying 
portfolios in the first half of this year in combination with its revised 
assumptions, it now expects that a majority of senior notes in CLOs, 
including a majority of Aaa tranches, are likely to be downgraded. For
the Aaa-rated tranches that may be downgraded in the coming months,
Moody's expects that they will mostly fall into the Aa category, with 
the actual magnitude of downgrade to vary from deal to deal. Moody's 
expects to conclude its Stage II global CLO surveillance sweep by the end 
of 2009.

CLO Surveillance -- 2nd Quarter 2009

In publishing its CLO Ratings Surveillance Brief for the second quarter
of 2009, Moody's summarized the results of rating actions to date during 
Stage II of the CLO surveillance sweep that was announced in February. 
Most of these deals affected by the negative rating actions in the second 
quarter have shown weaker-than-average performance based on a combination 
of several key performance metrics.

The factors considered in the prioritization of US CLOs include the 
portfolio weighted average rating factor (WARF) deterioration, 
overcollateralization (OC) erosion, percentage of defaulted collateral, 
Caa bucket increase, structured finance exposure, risk of interest 
deferral due to OC failure, and an assessment of the possible risk of an
event of default in the near future. Moody's notes that the
prioritization according to deal performance can be subject to changes
and that some of the 93 deals reviewed in the second quarter exhibited
relatively better performance to date, with Aaa-ratings that remained 
stable or were downgraded to Aa1.

Of the 510 downgraded tranches, 481 were from 89 U.S. CLO transactions 
totaling approximately US$31 billion, with the remainder having 
originated in Europe. Downgrade actions affected 132 tranches 
(approximately 26%) that were previously rated Aaa. Combined with rating 
actions taken in the first quarter, to date Moody's has downgraded 2,307 
tranches (roughly 48% of a total of 4,762 tranches) totaling 
approximately US$82 billion globally in 2009.

Deal Performance Trends

Moody's noted that during the first half of this year, CLO portfolios 
experienced significant deterioration in portfolio performance, although 
in May and June there were signs of stabilization in key performance
metrics. In particular, the average portfolio WARF (weighted average 
rating factor) increased by about 200 points from 2720 to 2918 in the 
first quarter before it declined slightly in June. The proportion of 
Caa-rated assets in CLO portfolios on average rose from around 9% in 
January to 12.6% in April and then declined to 11.9% in June. At the same 
time, defaults increased steadily from 3% in January to 6.3% in June, 
whereas the OC (overcollateralization) levels showed some stabilization 
in May and June after suffering a significant drop from January to April. 
The stabilization in the OC levels was partially a result of the 
improvement in loan prices and the slow-down in the pace of corporate 
downgrades into the Caa category.

This performance deterioration coincided with the global corporate credit
deterioration, which has been one of the worst in several decades.
According to Moody's June Default Report, the trailing 12-month default 
rate in the universe of Moody's rated U.S. loans rose to 8.2% in June 
from 5% in the first quarter and 2.1% a year ago.

Moody's also said that while CLOs overall have experienced significant
deteriorations, there are marked performance variations across deals.
For example, in the U.S., for the Phase 1 deals whose reviews have been 
completed (approximately 90 CLOs), the average Aa OC level was 114%, 
compared to 120% for the remainder of deals to be reviewed in the coming 
months. The average Caa basket was approximately 13.6% for Phase 1 deals, 
compared to 11.4% for the remaining deals. Even amongst the remaining 
deals that are considered to be average or better than average, there has 
been a large variation of portfolio performance to date, the report says. 
These performance trends across transactions are part of Moody's CLO 
rating surveillance analysis.

Revised CLO Rating Outlook

Due to significant credit deterioration in CLOs' underlying portfolios in 
the first half of this year (as noted above), in conjunction with the 
revised key assumptions for CLOs announced earlier this year and 
additional assumption changes applied during the Stage II review (details
provided in the Brief), Moody's now expects that a majority of senior 
notes, including a majority of Aaa tranches, will be downgraded during 
its Stage II review. That said, Moody's continues to expect a number of 
Aaa-rated tranches from the best performing deals, as well as most super 
senior tranches to remain Aaa. In addition, for the remaining Aaa-rated 
tranches that may be downgraded, Moody's expects that they will mostly
fall into the Aa category.

In the coming months, Moody's will continue to prioritize U.S. deals 
based on a combination of their key performance metrics. Because European 
CLOs often include unique features and a mixture of different asset 
types, deals are not prioritized in the same way as that in the U.S. In 
the coming months, priority will be given to those European deals from 
more recent vintages or deals with multi-currency features and then to 
deals from earlier vintages or with single-currency features. 

The Special Report, "CLO Ratings Surveillance Brief - Second Quarter 
2009," is available on moodys.com.