Study: Ranking Activity: Moody’s designates a provisionary score to one course of notes to be provided by IP Financing IX, Ltd.
New York City, March 17, 2023 — Moody’s Investors Solution (“Moody’s”) has actually designated a provisionary score to one course of notes to be provided by IP Financing IX, Ltd. (the “Provider”).
Moody’s score activity is as complies with:
U.S.$123,500,000 Senior Secured Fixed Rate Notes due 2028 (the “Senior Notes”), Assigned (P)A3 (sf)
The rating is based on the full credit support provided by Markel Bermuda Limited (A2 insurance financial strength rating) (“Markel”), Shelf Opco Bermuda Limited (“Shelf Opco”), as insurance agent, with binding authority, and on behalf of Fidelis Insurance Bermuda Limited (A3 insurance financial strength rating) (“Fidelis”), Aspen Bermuda Limited (A3 insurance financial strength rating) (“Aspen”), Everest Reinsurance (Bermuda), Ltd. (A1 insurance financial strength rating) (“Everest”), Liberty Specialty Markets Bermuda Limited (A2 insurance financial strength rating) (“Liberty”), (“Markel”, “Shelf Opco” on behalf of “Fidelis”, “Aspen”, “Liberty”, “Everest”, together the “Insurers”), under an insurance policy (the “Policy”).
Proceeds from the issuance of the rated notes were used to acquire a corporate loan from the original lender (the “Underlying Loan”). The underlying loan is secured by intellectual property and other assets of the corporate borrower. Neither the Underlying Loan nor the borrower are rated by Moody’s.
The policy period, and the term of the underlying loan are both four years. Under the terms of the Policy and other transaction documents, upon a default of the underlying loan’s financing agreement, the underlying loan will be marketed for sale during a waiting period. If the realized value is less than the principal amount of the rated notes, initially $123,500,000, the insurers will then be obligated to pay the deficiency within the timeframe specified in the Policy. The Insurers’ obligations under the Policy are several, not joint; Markel’s obligations under the Policy are up to $42,500,000, Shelf Opco on behalf of Fidelis obligations under the Policy are up to $37,000,000, Aspen’s obligations under the Policy are up to $15,000,000, Everests’ obligations under the Policy are up to $12,000,000 and Liberty’s obligations under the Policy are up to $17,000,000.
If the borrower is unable or unwilling to pay, interest on the rated notes will be paid from funds in interest reserve accounts that are sufficient to cover the period prior to the insurance claim payout that such an event will trigger. The interest reserve accounts include (1) a reserve relating to the underlying loan funded at close of the underlying loan with a minimum required amount of 9.9% of the rated notes, and (2) a reserve relating to the securitization, funded through the securitization waterfall which in combination with the underlying loan reserve account has a required amount of 97.2% of the annual senior note interest payment of 9.0%.
The legal final maturity of the rated notes is in March 2028, which is approximately one year after the latest maturity of the underlying loan, the maximum possible time interval between the filing of a loss claim and receipt of payment from the Insurers. Therefore, all potential loss claims, potential arbitration and payments to the Issuer should be concluded prior to the legal final maturity of the rated notes.
In assigning the rating to the Senior Notes, we also considered several qualitative factors, including, but not limited to, the operational risks present in transactions with multiple parties potentially making payments to the issuer, the timing of those cashflows and the terms of the credit support documents substantially conforming to relevant portions of Moody’s cross sector rating methodology: “Guarantees, Letters of Credit and Other Forms of Credit Substitution Methodology” published in July 2022, as well as the limited incentives of the insurer to dispute the claim.
In addition to the Senior Notes, the issuer will issue one class of subordinated notes, which are not rated by Moody’s.
Methodology Underlying the Rating Action:
The principal methodology used in this rating was “Moody’s Approach to Rating Repackaged Securities” published in June 2020 and available at https://ratings.moodys.com/api/rmc-documents/68357. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.
Additional considerations that factored into our analysis can be found in the rating methodology “Guarantees, Letters of Credit and Other Forms of Credit Substitution Methodology” published in July 2022 and available at https://ratings.moodys.com/api/rmc-documents/386295.
Factors That Would Lead to an Upgrade or Downgrade of the Rating:
The performance of the Senior Notes is subject to uncertainty. The performance of the rated notes will be sensitive to any changes in the credit quality of the Insurers or termination of the Policy, which in turn may impact the rating of the Senior Notes. The insured party’s and Insurers’ compliance with the Policy and the transaction documents will also affect the rating of the Senior Notes.
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 on https://ratings.moodys.com/rating-definitions.
Further information on the representations and warranties and enforcement mechanisms available to investors are available on https://ratings.moodys.com/documents/PBS_1358792.
In rating this transaction, Moody’s CDOROM is used to model the expected loss for each tranche. Moody’s CDOROM is a Monte Carlo simulation tool which takes each underlying asset default probability as input. Each underlying asset default behavior is then modeled individually with a standard multi-factor model incorporating both intra- and inter-industry correlation. The correlation structure is based on a Gaussian copula. Each Monte Carlo scenario simulates defaults and if applicable, recovery rates, to derive losses on a portfolio. For a synthetic transaction, the model then allocates losses to the tranches in reverse order of priority to derive the loss on the tranches. By repeating this process and averaging over the number of simulations, Moody’s can derive the expected loss on the tranches. For a cash transaction, the portfolio loss, or default, distribution produced by Moody’s CDOROM may be input into a separate cash flow model in accordance with its priority of payment to determine each tranche’s expected loss.
Moody’s did not use any stress scenario simulations in its analysis.
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 issuer/deal page for the respective issuer on https://ratings.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 rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.
This rating is solicited. Please refer to Moody’s Policy for Designating and Assigning Unsolicited Credit Ratings available on its website https://ratings.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://ratings.moodys.com/documents/PBC_1288235.
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 https://ratings.moodys.com.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the UK and is endorsed by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody’s office that issued the credit rating is available on https://ratings.moodys.com.
Please see https://ratings.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 issuer/deal page on https://ratings.moodys.com for additional regulatory disclosures for each credit rating.
Vice President – Senior 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
David H. Burger
VP – Elderly Debt Officer
Structured Finance Group
JOURNALISTS: 1 212 553 0376
Client Solution: 1 212 553 1653
Moody’s Investors Solution, Inc.
250 Greenwich Road
New York City, NY 10007
JOURNALISTS: 1 212 553 0376
Customer Service: 1 212 553 1653