Sept 13 -
-- We have assessed Taberna Europe CDO II’s performance by applying our relevant criteria and conducting our credit and cash flow analysis.
-- Following our review, we have lowered our ratings on the class A-1 and A-2 notes.
-- We have also affirmed our ratings all other classes of notes.
-- Taberna Europe CDO II is a CDO transaction backed by a portfolio comprising mostly subordinated loans and bonds, with some CMBS exposure.
Standard & Poor’s Ratings Services today lowered its credit ratings on Taberna Europe CDO II PLC’s class A-1 and A-2 notes. At the same time, we have affirmed our ratings on the class B, C-1, C-2, D, and E notes (see list below).
Today’s rating actions follow our assessment of the transaction’s performance using data from the latest available payment date report (dated Aug. 2, 2012), our cash flow analysis, and the application of our relevant criteria for transactions of this type.
Our analysis indicates that the overall credit quality of the underlying assets has deteriorated since our previous review in August 2011 (see “Ratings Lowered In Taberna Europe CDO I And II Due To Deteriorating Performance,” published on Aug. 17, 2011).
We have subjected the capital structure to a cash flow analysis based on the methodology and assumptions outlined in our September 2009 cash flow collateralized debt obligation (CDO) criteria, to determine the break-even default rate (BDR) for each rated class of notes (see “Update To Global Methodologies And Assumptions For Corporate Cash Flow And Synthetic CDOs,” published on Sept. 17, 2009).
We have also conducted a credit analysis to determine the scenario default rate (SDR) at each rating level, which we then compared with its respective BDR. In our analysis, we used the portfolio balance that we considered to be performing, the weighted-average spread, and the weighted-average recovery rates that we considered to be appropriate. We incorporated various cash flow stress scenarios using various default patterns, levels, and timings for each liability rating category assumed for each class of notes, in conjunction with different interest rate stress scenarios.
In our view, the credit deterioration observed in the underlying portfolio means that the class A-1 and A-2 notes in this transaction can no longer maintain their previous rating levels. Therefore, we have lowered our ratings on these classes of notes to levels that we consider to be commensurate with current credit enhancement levels.
At the same time, as part of our analysis, we tested the transaction’s capital structure against our largest obligor and industry default tests. These tests are supplemental stress tests that we introduced in our September 2009 cash flow CDO criteria that intend to address both event risk and model risk that may be present in the transaction. Our analysis of the results indicates that none of the classes of notes in this transaction is affected by the tests.
We have affirmed our ratings on the class B, C-1, C-2, D, and E notes as our analysis shows that these classes of notes are unable to withstand our credit and cash flow stresses at any level higher than our currently assigned ratings.
Taberna Europe CDO II is a CDO transaction backed by a portfolio comprising mostly subordinated loans and bonds, with some commercial mortgaged-backed securities (CMBS) exposure.
-- Global CDOs Of Pooled Structured Finance Assets: Methodology And Assumptions, Feb. 21, 2012
-- European Structured Finance Scenario And Sensitivity Analysis: The Effects Of The Top Five Macroeconomic Factors, March 14, 2012
-- Global Structured Finance Scenario And Sensitivity Analysis: The Effects Of The Top Five Macroeconomic Factors, Nov. 4, 2011
-- Ratings Lowered In Taberna Europe CDO I And II Due To Deteriorating Performance, Aug. 17, 2011
-- Assumptions: Risk Profiles Of Certain Hybrid Securities No Longer Support CDO Ratings Above ‘A+', Sept. 21, 2010
-- Revised Recovery Assumption For European Bank Hybrid Capital Securities In CDOs, July 7, 2010
-- Update To Global Methodologies And Assumptions For Corporate Cash Flow And Synthetic CDOs, Sept. 17, 2009
-- Global Methodology For Rating Trust Preferred/Hybrid Securities Revised, Nov. 21, 2008
Taberna Europe CDO II PLC
EUR899.1 Million Senior Deferrable Floating-Rate Notes
A-1 BB+ (sf) BBB (sf)
A-2 CCC (sf) B- (sf)
B CCC- (sf)
C-1 CCC- (sf)
C-2 CCC- (sf)
D CC (sf)
E CC (sf)