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Rating Action:

Moody's Affirms Five Classes of Talmage Structured Real Estate Funding 2005-2, Ltd.

Global Credit Research - 08 May 2013

Approximately $97.6 Million of Structured Securities Affected

New York, May 08, 2013 -- Moody's has affirmed the ratings of five classes of Notes issued by Talmage Structured Real Estate Funding 2005-2, Ltd. (f/k/a Guggenheim Structured Real Estate Funding 2005-2, Ltd.). The affirmations are due to key transaction parameters performing within levels commensurate with the existing ratings levels. The rating action is the result of Moody's on-going surveillance of commercial real estate collateralized debt obligation (CRE CDOCLO) transactions.

Moody's rating action is as follows:

Cl. B, Affirmed Aa3 (sf); previously on Jun 27, 2012 Upgraded to Aa3 (sf)

Cl. C, Affirmed Ba2 (sf); previously on Jun 27, 2012 Upgraded to Ba2 (sf)

Cl. D, Affirmed Caa3 (sf); previously on Aug 30, 2011 Upgraded to Caa3 (sf)

Cl. E, Affirmed C (sf); previously on Sep 2, 2010 Downgraded to C (sf)

Cl. F, Affirmed C (sf); previously on Sep 2, 2010 Downgraded to C (sf)

RATINGS RATIONALE

Talmage Structured Real Estate Funding 2005-2, Ltd. is a currently static (re-investment period ended in August, 2010) cash transaction backed by a portfolio of commercial mortgage backed securities (CMBS) (46.9% of the pool balance, including rake bonds), whole loans (32.4%) and b-notes (20.7%). As of the April 25, 2013 Trustee report, the aggregate Note balance of the transaction is $132.7 million compared to $305.8 million at issuance; due to a combination of amortisation, recoveries from defaulted collateral and principal resulting from the failure of certain par value and interest coverage tests.

Four assets with a par balance of $59.5 million (43.7% of the pool balance) were listed as impaired securities as of the April 25, 2013 Trustee Report. Moody's expects moderate/high losses to occur on these assets once they are realized.

Moody's has identified the following parameters as key indicators of the expected loss within CRE CDO transactions: weighted average rating factor (WARF), weighted average life (WAL), weighted average recovery rate (WARR), and Moody's asset correlation (MAC). These parameters are typically modeled as actual parameters for static deals and as covenants for managed deals.

WARF is a primary measure of the credit quality of a CRE CDO pool. We have completed updated assessments for the non-Moody's rated collateral. Moody's modeled a bottom-dollar WARF of 5,861 compared to 6,908 at last review. The current distribution of Moody's rated collateral and assessments for non-Moody's rated collateral is as follows: Aaa-Aa3 (0.0% compared to 1.9% at last review), A1-A3 (0.0% compared to 0.0% at last review), Baa1-Baa3 (13.3% compared to 6.8% at last review), Ba1-Ba3 (0.0% compared to 6.2% at last review), B1-B3 (22.0% compared to 21.4% at last review), and Caa1-C (64.7% compared to 63.7% at last review).

Moody's modeled a WAL of 2.6 years compared to 3.0 years at last review. The current WAL is based on assumptions about extensions on the underlying collateral.

Moody's modeled a fixed WARR of 26.2% compared to 23.3% at last review.

Moody's modeled a MAC of 0.0%, same as last review.

Moody's review incorporated CDOROM® v2.8, one of Moody's CDO rating models, which was released on March 25, 2013.

The cash flow model, CDOEdge® v3.2.1.2, was used to analyze the cash flow waterfall and its effect on the capital structure of the deal.

Moody's analysis encompasses the assessment of stress scenarios.

Changes in any one or combination of the key parameters may have rating implications on certain classes of rated notes. However, in many instances, a change in key parameter assumptions in certain stress scenarios may be offset by a change in one or more of the other key parameters. In general, the rated Notes are are particularly sensitive to changes in recovery rate assumptions. Holding all other key parameters static, changing the recovery rate assumption up from 26.2% to 36.2% or down to 16.2% would result in average rating movement on the rated tranches of 1 to 5 notches upward and 0 to 5 notches downward respectively.

The performance expectations for a given variable indicate Moody's forward-looking view of the likely range of performance over the medium term. From time to time, Moody's may, if warranted, change these expectations. Performance that falls outside the given range may indicate that the collateral's credit quality is stronger or weaker than Moody's had anticipated when the related securities ratings were issued. Even so, a deviation from the expected range will not necessarily result in a rating action nor does performance within expectations preclude such actions. The decision to take (or not take) a rating action is dependent on an assessment of a range of factors including, but not exclusively, the performance metrics.

Primary sources of assumption uncertainty are the extent of growth in the current macroeconomic environment given the weak pace of recovery and commercial real estate property markets. Commercial real estate property values are continuing to move in a modestly positive direction along with a rise in investment activity and stabilization in core property type performance. Limited new construction and moderate job growth have aided this improvement. However, a consistent upward trend will not be evident until the volume of investment activity steadily increases for a significant period, non-performing properties are cleared from the pipeline, and fears of a Euro area recession are abated.

The hotel sector is performing strongly with nine straight quarters of growth and the multifamily sector continues to show increases in demand with a growing renter base and declining home ownership. Recovery in the office sector continues at a measured pace with minimal additions to supply. However, office demand is closely tied to employment, where growth remains slow and employers are considering decreases in the leased space per employee. Also, primary urban markets are outperforming secondary suburban markets. Performance in the retail sector continues to be mixed with retail rents declining for the past four years, weak demand for new space and lackluster sales driven by internet sales growth. Across all property sectors, the availability of debt capital continues to improve with robust securitization activity of commercial real estate loans supported by a monetary policy of low interest rates.

Moody's central global macroeconomic scenario calls for US GDP growth for 2013 that is likely to remain close to 2% as the greater impetus from the US private sector is likely to broadly offset the drag on activity from more restrictive fiscal policy. Thereafter, we expect the US economy to expand at a somewhat faster pace than is likely this year, closer to its long-run average pace of growth. Risks to our forecasts remain skewed to the downside despite recent positive developments. Moody's believes that the three most immediate risks are: i) the risk of a deeper than currently expected recession in the euro area accompanied by deeper credit contraction, potentially triggered by a further intensification of the sovereign debt crisis; ii) slower-than-expected recovery in major emerging markets following the recent slowdown; and iii) an escalation of geopolitical tensions, resulting in adverse economic developments.

The methodologies used in this rating were "Moody's Approach to Rating SF CDOs" published in May 2012, and "Moody's Approach to Rating Commercial Real Estate CDOs" published in July 2011. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

REGULATORY DISCLOSURES

Moody's did not receive or take into account a third-party assessment on the due diligence performed regarding the underlying assets or financial instruments related to the monitoring of this transaction in the past six months.

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 rating action on the support provider and in relation to each particular 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 rating action, and whose ratings may change as a result of this 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.

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.

Kumud Jha
Associate Analyst
Structured Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Michael Gerdes
MD - Structured Finance
Structured Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Affirms Five Classes of Talmage Structured Real Estate Funding 2005-2, Ltd.
No Related Data.

 

© 2013 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

 


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