Gresham Capital CLO IV B.V. - Irish Stock Exchange

Based on these analyses, S&P determines the necessary level of credit enhancement needed to achieve a
desired rating. S&P analysis includes the application of its proprietary default expectation computer model (the
“CDO Evaluator”), which is used to estimate the default rate S&P projects the Portfolio is likely to experience
and which will be provided to the Collateral Manager on or before the Issue Date. The CDO Evaluator
calculates the cumulative default rate of a pool of Collateral Debt Securities and Eligible Investments consistent
with a specified benchmark rating level based upon S&P proprietary corporate debt default studies. The CDO
Evaluator takes into consideration the rating of each issuer or obligor, the number of issuers or obligors, the
issuer or obligor industry concentration, country of origin and the remaining weighted average maturity of each
of the Collateral Debt Securities included in the Portfolio. The risks posed by these variables are accounted for
by effectively adjusting the necessary default level needed to achieve a desired rating. The higher the desired
rating, the higher the level of defaults the Portfolio must withstand. For example, the higher the issuer or
obligor industry concentration or the longer the weighted average maturity, the higher the default level is
assumed to be.
Credit enhancement to support a particular rating is then provided on the results of the CDO Evaluator, as
well as other more qualitative considerations such as legal issues and management capabilities. Credit
enhancement is typically provided by a combination of overcollateralisation/subordination, cash
collateral/reserve account, excess spread/interest and amortisation. A cash flow model (the “Transaction
Specific Cash Flow Model”) prepared by the seller or adviser is used to evaluate the portfolio and determine
whether it can comfortably withstand the estimated level of default while fully repaying the class of debt under
consideration.
There can be no assurance that actual losses on the Collateral Debt Securities will not exceed those assumed
in the application of the CDO Evaluator or that recovery rates and the timing of recovery with respect thereto
will not differ from those assumed in the Transaction Specific Cash Flow Model. None of S&P, the Issuer, the
Collateral Manager, the Collateral Administrator, the Trustee or the Initial Purchaser makes any representation
as to the expected rate of defaults on the Portfolio or as to the expected timing of any defaults that may occur.
After the Reinvestment Period, the CDO Evaluator Test will be satisfied if after giving effect to the purchase or
sale of a Collateral Debt Security, the rate of defaults on the then current Portfolio is no worse than that
determined in respect of the Portfolio existing on the Issue Date.
S&P ratings of the Senior Notes and the other Rated Notes were established under various assumptions and
scenario analyses. There can be no assurance that actual defaults on the Collateral Debt Securities will not
exceed those assumed by S&P in its analysis, or that recovery rates with respect thereto (and, consequently, loss
rates) will not differ from those assumed by S&P.
In addition to these quantitative tests, the Rating Agencies’ ratings take into account qualitative features of
a transaction, including the experience of the Collateral Manager, the legal structure and the risks associated
with such structure and other factors that they deem relevant.
In addition, a portion of the Collateral Debt Securities will not be rated by the Rating Agencies but will be
assigned a rating pursuant to the methodology described herein. See “Description of the Portfolio—The
Collateral Quality Tests” below.
The Collateral Manager will request the Rating Agencies’ confirmation, within 30 days after the Target
Date, that there has been no Target Date Rating Downgrade.
None of the Issuer, the Trustee, the Collateral Manager, the Collateral Administrator, the Capital
Commitment Registrar or the Initial Purchaser makes any representation as to the expected rate of default on the
Collateral Debt Securities, the expected timing of any default that may occur or the rate of recoveries or losses
in respect of Defaulted Securities.
Prospective investors must seek their own advice and make appropriate determinations and decisions
thereunder.
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