Feb 29 -
-- Since our previous review of the transaction in March 2010, we have witnessed improvement in the portfolio’s credit quality.
-- Following our credit and cash flow analysis, we have raised our ratings on the class B and D notes.
-- We have also affirmed our ratings on the class A-1a, A-1b, A-2, A-3a, A-3b, A-4, C, and E notes, and class P combination notes.
-- Grosvenor Place CLO II is a cash flow CLO of loans to primarily speculative-grade corporate firms managed by CQS Cayman Limited Partnership.
Standard & Poor’s Ratings Services today raised its credit ratings on Grosvenor Place CLO II B.V.’s class B and D notes. At the same time, we have affirmed our ratings on the class A-1a, A-1b, A-2, A-3a, A-3b, A-4, C, and E notes, and the class P combination notes (see list below).
Today’s rating actions follow our credit and cash flow analysis of the transaction’s performance, which indicates that the portfolio’s credit quality has improved, and overcollateralization of the notes has remained unchanged since our previous review of the transaction in March 2010.
Grosvenor Place CLO II is a cash flow collateralized loan obligation (CLO) transaction that closed in January 2007. The portfolio of loans to primarily speculative-grade corporate firms is managed by CQS Cayman Limited Partnership.
The portfolio manager can purchase up to 30% of the portfolio balance in British pound sterling- or U.S. dollar-denominated assets. Purchases of such assets can be funded by class A-2 note issuance proceeds, and class A-3a sterling or dollar advances to create a natural hedge. In transactions such as these, we typically find that the issuer purchased foreign exchange options at closing to help mitigate currency risks. In our view, the current absence of such options in Grosvenor Place CLO II, reflected in our cash flow modeling, may limit the potential for positive rating action in the transaction in the near term, compared with similar transactions that incorporate foreign exchange options..
We previously reviewed the transaction on March 16, 2010, when we downgraded all of the rated classes of notes following the update of our criteria for corporate collateralized debt obligations (CDOs) (see “Update To Global Methodologies And Assumptions For Corporate Cash Flow And Synthetic CDOs,” published on Sept. 17, 2009), and based on our assessment of the collateral portfolio’s credit deterioration (see “S&P Ratings List For European CLO Transactions-March 16, 2010 Review”).