Approximately $103.6 Million of Structured Securities Affected
New York, June 27, 2012 -- Moody's has upgraded the ratings of two and affirmed the ratings of three
classes of Notes issued by Talmage Structured Real Estate Funding 2005-2,
Ltd. (f/k/a Guggenheim Structured Real Estate Funding 2005-2,
Ltd.) primarily due to $45.5 million in amortization
of collateral since the last review in August 2011. Additionally,
the underlying collateral performance has been relatively stable as evidenced
by the Moody's weighted average rating factor (WARF) and recovery rate
(WARR). The collateral composition has trended towards whole loan
assets which are expected to receive near term amortization and higher
than average recoveries given any default. It is noted that the
transaction is highly sensitive to recovery rates as evidenced in the
parameter sensitivity discussion below. 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 CDO and Re-REMIC) transactions.
Moody's rating action is as follows:
Cl. B, Upgraded to Aa3 (sf); previously on Aug 30,
2011 Upgraded to Ba2 (sf)
Cl. C, Upgraded to Ba2 (sf); previously on Aug 30,
2011 Upgraded to B3 (sf)
Cl. D, Affirmed at Caa3 (sf); previously on Aug 30,
2011 Upgraded to Caa3 (sf)
Cl. E, Affirmed at C (sf); previously on Sep 2,
2010 Downgraded to C (sf)
Cl. F, Affirmed at C (sf); previously on Sep 2,
2010 Downgraded to C (sf)
RATINGS RATIONALE
Talmage Structured Real Estate Funding 2005-2, Ltd.
is currently a static cash CRE CDO transaction (the reinvestment period
ended August 2010) backed by a portfolio of commercial mortgage backed
securities (CMBS) (30.0% of the pool balance), A-Notes
and whole loans (32.0% of the pool balance), B-Notes
(20.4%) and a rake bond (17.6%). As
of the May 18, 2012 Trustee report, the aggregate Note balance
of the transaction, including preferred shares, has decreased
to $140.3 million from $305.8 million at issuance,
with the paydown now directed to the Class B Notes, as a result
of full and partial amortization of the underlying collateral as well
as failing of the Class D and E par value tests.
There are five assets with a par balance of $82.1 million
(58.5% of the current pool balance) that are considered
Impaired Securities as of the May 18, 2012 Trustee report.
One of these assets is a rake bond (30.1% of the impaired
balance), one asset is a whole loan (27.3%),
two assets are B-Notes (24.1%) and one asset is an
A-Note (18.5%). While there have been no realized
losses to the five remaining impaired assets to date, Moody's does
expect moderate losses to occur once they are realized.
Moody's has identified the following parameters as key indicators of the
expected loss within CRE CDO transactions: WARF, weighted
average life (WAL), 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. The bottom-dollar WARF is a measure of the default
probability within a collateral pool. Moody's modeled a bottom-dollar
WARF of 6,908 compared to 6,007 at last review. The
current distribution of Moody's rated collateral and assessments
for non-Moody's rated collateral is as follows: Aaa-Aa3
(1.9% compared to 3.7% at last review),
A1-A3 (0.0% compared to 0.0% at last
review), Baa1-Baa3 (6.8% compared to 11.2%
at last review), Ba1-Ba3 (6.2% compared to
4.8% at last review), B1-B3 (21.4%
compared to 0.0% at last review), and Caa1-C
(63.7% compared to 80.2% at last review).
WAL acts to adjust the probability of default of the reference obligations
in the pool for time. Moody's modeled to a WAL of 3.0 years
compared to 1.0 years at last review.
WARR is the par-weighted average of the mean recovery values for
the collateral assets in the pool. Moody's modeled a fixed WARR
of 23.3% compared to 20.2% at last review.
MAC is a single factor that describes the pair-wise asset correlation
to the default distribution among the instruments within the collateral
pool (i.e. the measure of diversity). Moody's modeled
a MAC of 0.0% compared to 13.8% at last review.
Moody's review incorporated CDOROM® v2.8, one of Moody's
CDO rating models, which was released on January 24, 2011.
The cash flow model, CDOEdge® v3.2.1.1,
was used to analyze the cash flow waterfall and its effect on the capital
structure of the deal.
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. Rated notes are particularly sensitive to changes
in recovery rate assumptions. Holding all other key parameters
static, changing the recovery rate assumption down from 23.3%
to 13.3% or up to 33.3% would result in average
rating movement on the rated tranches of 0 to 5 notches downward and 0
to 10 notches upward, 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 and commercial real estate property
markets. While commercial real estate property values are beginning
to move in a positive direction along with a rise in investment activity
and stabilization in core property type performance, a consistent
upward trend will not be evident until the volume of investment activity
steadily increases, distressed properties are cleared from the pipeline,
and job creation rebounds. The hotel sector is performing strongly
and the multifamily sector continues to show increases in demand.
Moderate improvements in the office sector continue with minimal additions
to supply. However, office demand is closely tied to employment,
where growth remains slow. Performance in the retail sector has
been mixed with lackluster sales driven by discounting and promotions.
However, rising wages and reduced unemployment, along with
increased consumer confidence, is helping to spur consumer spending.
Across all property sectors, the availability of debt capital continues
to improve with increased securitization activity of commercial real estate
loans supported by a monetary policy of low interest rates. Moody's
central global macroeconomic scenario reflects healthier growth in the
US and US growth decoupling from the recessionary trend in the euro zone,
while a mild recession is expected in 2012. Downside risks remain
significant, although they have moderated compared to earlier this
year. Major downside risks include an increase in the potential
magnitude of the euro area recession, the risk of an oil supply
shock weighing negatively on consumer purchasing power and home prices,
ongoing and policy-induced banking sector deleveraging leading
to a tightening of bank lending standards and credit contraction,
financial market turmoil continuing to negatively impact consumer and
business confidence, persistently high unemployment levels,
and weak housing markets, any or all of which will continue to constrain
growth.
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
The Global Scale Credit Ratings on this press release that are issued
by one of Moody's affiliates outside the EU are endorsed by Moody's
Investors Service Ltd., One Canada Square, Canary Wharf,
London E 14 5FA, UK, 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 has issued a particular Credit Rating is available on www.moodys.com.
For ratings issued on a program, series or category/class of debt,
this announcement provides relevant 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 relevant 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 relevant 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.
Information sources used to prepare the rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, confidential and proprietary Moody's Investors
Service information, and confidential and proprietary Moody's
Analytics information.
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.
Moody's considers the quality of information available on the rated
entity, obligation or credit satisfactory for the purposes of issuing
a rating.
Moody's adopts all necessary measures so that the information it
uses in assigning a rating is of sufficient quality and from sources Moody's
considers to be reliable including, when appropriate, independent
third-party sources. However, Moody's is not
an auditor and cannot in every instance independently verify or validate
information received in the rating process.
Please see the ratings disclosure page on www.moodys.com
for general disclosure on potential conflicts of interests.
Please see the ratings disclosure page on www.moodys.com
for information on (A) MCO's major shareholders (above 5%) and
for (B) further information regarding certain affiliations that may exist
between directors of MCO and rated entities as well as (C) the names of
entities that hold ratings from MIS that have also publicly reported to
the SEC an ownership interest in MCO of more than 5%. A
member of the board of directors of this rated entity may also be a member
of the board of directors of a shareholder of Moody's Corporation;
however, Moody's has not independently verified this matter.
Please see Moody's Rating Symbols and Definitions on the Rating Process
page on www.moodys.com for further information on the meaning
of each rating category and the definition of default and recovery.
Please see ratings tab on the issuer/entity page on www.moodys.com
for the last rating action and the rating history.
The date on which some ratings were first released goes back to a time
before Moody's ratings were fully digitized and accurate data may not
be available. Consequently, Moody's provides a date that
it believes is the most reliable and accurate based on the information
that is available to it. Please see the ratings disclosure page
on our website www.moodys.com for further information.
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.
Jocelyn Delifer
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 Upgrades Two and Affirms Three Classes of Talmage Structured Real Estate Funding 2005-2, Ltd.
