(The following statement was released by the rating agency)
Sept 13 -
-- Credit enhancement levels in Cheyne Credit Opportunity CDO I have increased, due to the amortization of the class IA notes.
-- Following our credit and cash flow analysis, we have raised our ratings on the class IB and IV def notes, and affirmed all other ratings in this transaction.
-- Cheyne Credit Opportunity CDO I is a cash flow CDO transaction that closed in March 2006, and its reinvestment period ended in February 2011.
Standard & Poor’s Ratings Services today raised its credit ratings on Cheyne Credit Opportunity CDO I B.V.’s class IB and IV def notes. At the same time, we have affirmed our ratings on the class IA funding, II, III def, and V def notes (see list below).
Today’s rating actions follow our credit and cash flow analysis of this transaction’s performance since our previous full review in January 2010, using data from the latest available trustee report (dated July 31, 2012). We have considered recent transaction developments--applying our 2009 corporate collateralized debt obligation (CDO) and 2012 counterparty criteria (see “Update To Global Methodologies And Assumptions For Corporate Cash Flow And Synthetic CDOs,” published on Sept. 17, 2009, and “Counterparty Risk Framework Methodology And Assumptions,” published on May 31, 2012).
The trustee report shows that the “I/II par value test” is currently passing. It also shows that the reported weighted-average spread earned on the collateral pool has increased to 3.7% from 3.4% at our previous review, and that the class IA funding notes have partially repaid. The partial repayment has increased credit enhancement levels for all classes of notes, except the class V def notes.
Our analysis shows that the scenario default rates have changed little since our previous review, because the shorter weighted-average life of the assets in the portfolio has been counterbalanced by their negative ratings migration.
At the same time, the percentage of assets that we consider to be defaulted (i.e., debt obligations of obligors rated ‘CC’, ‘C’, ‘SD’ [selective default], or ‘D’) has remained stable at 6.75% since our previous review. In line with our 2009 corporate CDO criteria, we have included these assets in our cash flow analysis at the lower of their reported market value, and our recovery assumptions.
We have subjected this transaction’s capital structure to a cash flow analysis to determine the break-even default rate for each rated class at each rating level. In our analysis, we used the portfolio balance that we considered to be performing (EUR744 million), the reported weighted-average spread (3.7%), and the weighted-average recovery rates that we considered to be appropriate. We incorporated various cash flow stress scenarios using our standard default patterns for each rating category assumed for each rated class of notes, in conjunction with different interest rate scenarios.
Approximately 6.6% of the assets in the portfolio are non-euro-denominated, while all of the notes are euro-denominated. To mitigate the risk of foreign-exchange-related losses, the issuer has entered into swap agreements for all of these assets. Under our 2012 counterparty criteria, the swap counterparties and the associated documentation cannot support a rating higher than ‘AA- (sf)’ on the notes in this transaction.
To assess the potential impact on our ratings, we have assumed that this transaction does not benefit from the swap agreements and that all of the non-euro-denominated assets are exposed to the risk of foreign-exchange-related losses.
Based on our analysis, we consider that the credit enhancement levels available to the class IB and IV def notes are now commensurate with higher ratings than we previously assigned. Accordingly, we have raised our ratings on these classes of notes. In our opinion, the credit enhancement levels available to all other classes of notes in this transaction remain commensurate with our current ratings. Accordingly, we have affirmed our ratings on these classes of notes.
Cheyne Credit Opportunity CDO I is a cash flow CDO transaction that securitizes loans to speculative-grade corporate firms. It closed in March 2006 and is managed by Cheyne Capital Management Ltd.
-- Counterparty Risk Framework Methodology And Assumptions, May 31, 2012
-- European CLO Performance Index Shows Continued Rise In Percentage Of Defaulted Assets For December 2011, March 28, 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
-- Update To Global Methodologies And Assumptions For Corporate Cash Flow And Synthetic CDOs, Sept. 17, 2009
-- Understanding Standard & Poor’s Rating Definitions, June 3, 2009
-- Joint-Support Criteria Update, April 22, 2009
-- General Cash Flow Analytics For CDO Securitizations, Aug. 25, 2004
Cheyne Credit Opportunity CDO I B.V.
EUR1 Billion Variable Funding And Floating-Rate Notes
IB AAA (sf) AA+ (sf)
IV def BBB+ (sf) BBB (sf)
IA funding AAA (sf)
II AA+ (sf)
III def A+ (sf)
V def BB+ (sf)