New York, June 29, 2012 -- Moody's Investors Service has assigned a A1 (sf) rating on each interest
rate swap in RMBS deals CWABS Asset-Backed Certificates Trust 2007-7
and CWABS Asset-Backed Certificates Trust 2007-9.
Moody's rating addresses the credit risk posed to the swap counterparty.
This rating only addresses the risk attributable to the ability of the
trust to continue to honor its obligations under the swaps. The
rating does not address market risk that may be experienced by the party
facing the trust under the swap contracts.
Issuer: CWABS Asset-Backed Certificates Trust 2007-7
Swaps: Interest Rate Swap, Assigned A1 (sf)
Issuer: CWABS Asset-Backed Certificates Trust 2007-9
Swaps: Interest Rate Swap, Assigned A1 (sf)
RATINGS RATIONALE
The ratings take into account the rating of the swap counterparty,
the transaction's legal structure and the characteristics of the collateral
mortgage pool of the respective trust. Because there is relatively
limited historical performance data for the types of instruments,
this credit rating may have a greater potential rating volatility than
would ratings for transactions supported by more historical performance
data.
Our rating approach for this counterparty instrument rating (CIR) rests
on three propositions:
-- The CIRs are based on an analysis of the payment promise
made by the trust, the position of the instrument in the payment
waterfall, the credit quality of the rated payment flows,
the security arrangements governing the trust's relationship with the
counterparty, the support mechanisms available to the counterparty,
the termination date of the swap and other structural features of the
transaction in question. In this regard, the rating process
is similar to that for all other ratings assigned by Moody's.
-- The credit quality and ratings assigned to counterparty
instrument obligations of the trust may differ from those of its payment
obligations to bondholders. As a result, ratings assigned
to bonds issued by the trust may diverge from the CIR and therefore the
bond ratings may offer only a limited guidance on the CIR.
-- Although counterparty instrument ratings address payments
to rather than from the counterparty, in certain circumstances the
credit strength of the counterparty itself may have a bearing on the CIR.
For example, where a counterparty's non-performance under
a swap agreement leads to the trust having to make a termination payment
to that counterparty, Moody's will take into account the likelihood
of the counterparty's non-performance occurring and the position
of termination payments in the cash flow waterfall . Specifically,
in the event that the swap counterparty causes a termination event,
any termination payment owed to the swap counterparty may be paid at the
bottom of the cash flow waterfall. As a result, a default
by the swap counterparty, BNP Paribas which currently has a long-term
rating of A2 and a P-1 short term rating by Moody's, makes
payment in full to the counterparty unlikely.
By way of background, the swap counterparty receives a fixed rate
from, and pays LIBOR to, the trust on notional amounts that
are the lower of the aggregate balance of the outstanding certificates
in the deals and monthly amounts set forth in the schedules to the swap
agreements. Per the terms of the deal documents, the swap
counterparty receives payments from the swap prior to bondholders,
and is thus in a senior position to all bonds issued by the trust.
The termination date for the interest rate swap in CWABS 2007-7
is April 2014 and for interest rate swap in CWABS 2007-9 is April
2015. To pay the swap counterparty, the trust also has access
to principal payments, liquidation proceeds and interest collections.
This provision strengthens the nature of senior payment right of the swap
counterparty.
The primary risks driving the rating on the swaps is the risk that the
collateral pool amortizes at a rate that exceeds the amortization rate
of the swaps' notional balances and the risk of a termination event triggered
by a default of the swap counterparty. However, this risk
is mitigated in both swaps by the fact that the notional balance used
for calculating the swap payment obligations is the minimum of the scheduled
notional and the outstanding balance of the certificates in each deal.
Additionally the balance of the certificates in each deal is reduced by
the allocation of losses from the collateral pool.
Our methodology for rating swaps on US RMBS transactions includes running
collateral cashflows and considers the rating of the swap counterparty.
We stress the cashflows by increasing defaults and prepayments to determine
what level of collateral stress would cause a shortfall in proceeds owed
to the swap counterparty. The cashflows are modeled to reflect
the waterfall of the underlying transaction, which results in all
swap payments other than termination payments caused by a counterparty
default coming at the top of the waterfall. Termination payments
owed to the swap counterparty resulting from a default of the swap counterparty
are paid at the bottom of the waterfall.
The principal methodology used in these ratings was Moody's Approach
to Counterparty Instrument Ratings published in February 2012.
Please see the Credit Policy page on www.moodys.com for
a copy of this methodology.
In addition, Moody's publishes a weekly summary of structured finance
credit, ratings and methodologies, available to all registered
users of our website, at www.moodys.com/SFQuickCheck.
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 each of the ratings are the following:
parties involved in the ratings and public 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 in these transactions.
Moody's considers the quality of information available on the rated
entities, obligations or credits satisfactory for the purposes of
issuing these ratings. However, the ratings were based on
limited historical data.
Moody's adopts all necessary measures so that the information it
uses in assigning the ratings 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.
In addition to the information provided below please find on the ratings
tab of the issuer page at www.moodys.com, for each
of the ratings covered, Moody's disclosures on the lead rating
analyst and the Moody's legal entity that has issued each of the
ratings.
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.
Gerard Mazi
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
Kruti Muni
VP - Senior Credit Officer
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 assigns rating to swaps in RMBS transactions CWABS 2007-7 and 2007-9
