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Rating Action: Moody's rates CLO refinancing notes issued by Marathon CLO V Ltd

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11/22/2017 | 02:03pm CET

Moody's Investors Service ('Moody's') has assigned the following rating to the following notes (the 'Refinancing Notes') issued by Marathon CLO V Ltd. (the 'Issuer' or 'Marathon CLO V').

U.S.$369,300,000 Class A-1-R Senior Secured Floating Rate Notes due 2027 (the 'Class A-1-R Notes'), Assigned Aaa (sf)


Moody's rating of the Class A-1-R Notes addresses the expected loss posed to noteholders. The rating reflects the risks due to defaults on the underlying portfolio of assets, the transaction's legal structure, and the characteristics of the underlying assets.

The Issuer has issued the Class A-1-R Notes on November 21, 2017 (the 'Refinancing Date') in connection with the refinancing of the Class A-1 Senior Secured Floating Rate Notes due 2025 (the 'Class A-1 Notes'), previously issued on February 21, 2013 (the 'Original Closing Date'). The Issuer used the proceeds from the issuance of the Class A-1-R Notes to redeem in full the Class A-1 Notes that were refinanced. In addition to the Class A-1 Notes, six other classes of notes were redeemed in full and refinanced through the issuance of four replacement classes of notes. Additional subordinated notes were also issued.

In addition to changes to the capital structure described above and to the coupons of the notes, key modifications to the CLO that occurred in connection with the refinancing include: extensions of the non-call period, reinvestment period, weighted average life test and stated maturity of the notes, changes to the collateral quality matrix, an increase in the amount of cov-lite loans permitted and a variety of other changes to the transaction features.

Marathon CLO V is a managed cash flow CLO. The issued notes are collateralized primarily by broadly syndicated first lien senior secured corporate loans. At least 90% of the portfolio must consist of senior secured loans and eligible investments, and up to 10% of the portfolio may consist of second lien loans and unsecured loans. As of the October, 2017 Trustee Report and based on our calculations, the portfolio does not satisfy certain Collateral Quality Tests.

Marathon Asset Management, L.P. (the 'Manager') manages the CLO. It directs the selection, acquisition, and disposition of collateral on behalf of the Issuer. After the reinvestment period, which ends in November 2019, the Manager may reinvest unscheduled principal payments and proceeds from sales of credit risk obligations, subject to certain restrictions.

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 of the 'Moody's Global Approach to Rating Collateralized Loan Obligations' rating methodology published in August 2017.

The key model inputs Moody's used in its analysis, such as par, weighted average rating factor, diversity score and the weighted average recovery rate, are based on its published methodology and could differ from the trustee's reported numbers. For modeling purposes, Moody's used the following base-case assumptions:

Performing par and principal proceeds balance: $561,464,887

Defaulted par: $21,524,795

Diversity Score: 55

Weighted Average Rating Factor (WARF): 3361

Weighted Average Spread (WAS): 3.80%

Weighted Average Recovery Rate (WARR): 47.84%

Weighted Average Life (WAL): 6 years

Methodology Underlying the Rating Action:

The principal methodology used in this rating was 'Moody's Global Approach to Rating Collateralized Loan Obligations' published in August 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Factors That Would Lead to a Downgrade of the Rating:

The performance of the Class A-1-R Notes is subject to uncertainty. The performance of the Class A-1-R 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 Class A-1-R Notes.

Together with the set of modeling assumptions above, Moody's conducted an additional sensitivity analysis, which was a component in determining the rating assigned to the Class A-1-R Notes. This sensitivity analysis includes increased default probability relative to the base case.

Below is a summary of the impact of an increase in default probability (expressed in terms of WARF level) on the Class A-1-R Notes (shown in terms of the number of notch difference versus the current model output, whereby a negative difference corresponds to higher expected losses), assuming that all other factors are held equal:

Percentage Change in WARF-increase of 15% (from 3361 to 3866)

Rating Impact in Rating Notches

Class A-1-R Notes: 0

Percentage Change in WARF-increase of 30% (from 3361 to 4370)

Rating Impact in Rating Notches

Class A-1-R Notes: -1

Further details regarding Moody's analysis of this transaction may be found in the related pre-sale report, published prior to the Original Closing Date in January 2013 and available on Moodys.com.


For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions of the disclosure form.

Further information on the representations and warranties and enforcement mechanisms available to investors are available on http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1100992

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 or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt 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.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

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.

Svetlana Zaitseva

Associate Analyst

Structured Finance Group

Moody's Investors Service, Inc.

250 Greenwich Street

New York, NY 10007


JOURNALISTS: 1 212 553 0376

Client Service: 1 212 553 1653

Jian Hu

MD - Structured Finance

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


JOURNALISTS: 1 212 553 0376

Client Service: 1 212 553 1653

(C) 2017 Electronic News Publishing, source ENP Newswire

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Average target price 152 $
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