Rating Action: Moody's assigns ratings to six classes of notes and one class of rated structured notes issued by Nassau 2020-I Ltd.
Global Credit Research - 11 Aug 2020
New York, August 11, 2020 -- Moody's Investors Service ("Moody's") has assigned ratings to six classes of notes and one class of rated structured notes issued by Nassau 2020-I Ltd. (the "Issuer" or "Nassau 2020-I").
Moody's rating action is as follows:
U.S.$137,500,000 Class A-1 Senior Secured Floating Rate Notes due 2029 (the "Class A-1 Notes"), Assigned Aaa (sf)
U.S.$25,000,000 Class B-1 Senior Secured Floating Rate Notes due 2029 (the "Class B-1 Notes"), Assigned Aa2 (sf)
U.S.$6,875,000 Class B-2 Senior Secured Fixed Rate Notes due 2029 (the "Class B-2 Notes"), Assigned Aa2 (sf)
U.S.$10,625,000 Class C Senior Secured Deferrable Floating Rate Notes due 2029 (the "Class C Notes"), Assigned A2 (sf)
U.S.$15,000,000 Class D Senior Secured Deferrable Floating Rate Notes due 2029 (the "Class D Notes"), Assigned Baa3 (sf)
U.S.$12,500,000 Class E Secured Deferrable Floating Rate Notes due 2029 (the "Class E Notes"), Assigned Ba3 (sf)
U.S.$20,282,710 Rated Structured Notes (composed of components representing $12,500,000 of Class E Notes and $10,000,000 of Subordinated Notes (collectively, the "Components")) due 2029 (the "Rated Structured Notes"), Assigned Ba3 (sf) with respect to the ultimate receipt of the "Aggregate Structured Note Rated Balance" (as defined in the transaction's indenture).
The Class A-1 Notes, the Class B-1 Notes, the Class B-2 Notes, the Class C Notes, the Class D Notes, and the Class E Notes are referred to herein, together, as the "Rated Notes."
The Rated Structured Notes are herein referred to as the "Rated Structured Notes".
The Rated Structured Notes' structure includes several notable features. The Rated Structured Notes promise the repayment of the Aggregate Structured Note Rated Balance and do not bear a stated rate of interest. In addition to the Rated Structured Notes, the Issuer also issued the Residual Structured Notes (the "Residual Structured Notes") that Moody's did not rate. Any proceeds from the Components will be first applied to the payment of principal of the Rated Structured Notes until its principal is reduced to zero and second, distributed to the Residual Structured Notes. While the Rated Structured Notes are outstanding, the Issuer cannot re-price or refinance the Components, without satisfaction of certain conditions.
RATINGS RATIONALE
The rationale for the ratings is based on our methodology and considers all relevant risks, particularly those associated with the CLO's portfolio and structure.
Nassau 2020-I is a managed cash flow CLO. The issued notes will be collateralized primarily by broadly syndicated senior secured corporate loans. At least 97.5% of the portfolio must consist of first lien senior secured loans, cash, and eligible investments, and up to 2.5% of the portfolio may consist of second lien loans and unsecured loans. The portfolio is approximately 83% ramped as of the closing date. NCC CLO Manager LLC (the "Manager") will direct the selection, acquisition and disposition of the assets on behalf of the Issuer and may engage in trading activity, including discretionary trading, during the transaction's one year reinvestment period. Thereafter, subject to certain restrictions, the Manager may reinvest unscheduled principal payments and proceeds from sales of credit risk assets. In addition to the Rated Notes and the Rated Structured Notes, the Issuer issued one other class of notes as well as residual and subordinated notes.
The transaction incorporates interest and par coverage tests which, if triggered, divert interest and principal proceeds to pay down the notes in order of seniority.
Moody's modeled the transaction using a cash flow model based on the Binomial Expansion Technique, as described in Section 2.3.2.1 of the "Moody's Global Approach to Rating Collateralized Loan Obligations" rating methodology published in March 2019.
For modeling purposes, Moody's used the following base-case assumptions:
Par amount: $250,000,000
Diversity Score: 60
Weighted Average Rating Factor (WARF): 2849
Weighted Average Spread (WAS): 3.70%
Weighted Average Coupon (WAC): 7.00%
Weighted Average Recovery Rate (WARR): 47.0%
Weighted Average Life (WAL): 6.0 years
The rapid spread of the coronavirus outbreak, the government measures put in place to contain it and the deteriorating global economic outlook, have created a severe and extensive credit shock across sectors, regions and markets. Our analysis has considered the effect on the performance of corporate assets from the collapse in U.S. economic activity in the second quarter and a gradual recovery in the second half of the year. However, that outcome depends on whether governments can reopen their economies while also safeguarding public health and avoiding a further surge in infections. As a result, the degree of uncertainty around our forecasts is unusually high. We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety.
Methodology Underlying the Rating Action:
The principal methodology used in these ratings was "Moody's Global Approach to Rating Collateralized Loan Obligations" published in March 2019 and available at https://www.moodys.com/research/Moodys-Global-Approach-to-Rating-Collateralized-Loan-Obligations--PBS_1111156. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
Factors That Would Lead to an Upgrade or Downgrade of the Ratings:
The performance of the Rated Notes and the Rated Structured Notes is subject to uncertainty. The performance of the Rated Notes is sensitive to the performance of the underlying portfolio, which in turn depends on economic and credit conditions that may change. The Manager's investment decisions and management of the transaction will also affect the performance of the Rated Notes. The ratings on the Rated Structured Notes, which combine cash flows from the Components, are subject to a higher degree of volatility than the other rated notes of the Issuer, primarily due to the uncertainty of cash flows from the Subordinated Notes. Moody's applied haircuts to the cash flows from the Subordinated Notes based on the target rating of the Rated Structured Notes. Actual distributions from the Subordinated Notes that differ significantly from Moody's assumptions can lead to a faster (or slower) speed of reduction in the Aggregate Structured Note Rated Balance, thereby resulting in better (or worse) ratings performance than previously expected.
Further details regarding Moody's analysis of this transaction may be found in the related new issue report, available soon on Moodys.com.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004. Further information on the representations and warranties and enforcement mechanisms available to investors are available on http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1214068. The analysis relies on an assessment of collateral characteristics to determine the collateral loss distribution, that is, the function that correlates to an assumption about the likelihood of occurrence to each level of possible losses in the collateral. As a second step, Moody's evaluates each possible collateral loss scenario using a model that replicates the relevant structural features to derive payments and therefore the ultimate potential losses for each rated instrument. The loss a rated instrument incurs in each collateral loss scenario, weighted by assumptions about the likelihood of events in that scenario occurring, results in the expected loss of the rated instrument. Moody's quantitative analysis entails an evaluation of scenarios that stress factors contributing to sensitivity of ratings and take into account the likelihood of severe collateral losses or impaired cash flows. Moody's weights the impact on the rated instruments based on its assumptions of the likelihood of the events in such scenarios occurring. For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com. For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
At least one ESG consideration was material to the credit rating action(s) announced and described above.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.
Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.
Rudolph Bunja Senior Vice President Structured Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Elina Kolmanovskaya Vice President - Senior Analyst Structured Finance Group JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653
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