$6.0 Billion of Structured Securities Affected
New York, March 09, 2011 -- Moody's Investors Service (Moody's) affirmed twelve and downgraded thirteen
classes of Notes issued by WAVE SPC due to deterioration in the credit
quality of the underlying portfolios as evidenced by an increase in the
weighted average rating factor (WARF) and a decrease in the weighted average
recovery rate (WARR) since our last review. Three transactions
are affected: WAVE 2007-1, Ltd. (WAVE 2007-1),
WAVE 2007-2, Ltd. (WAVE 2007-2) and WAVE 2007-3,
Ltd. (WAVE 2007-3). The rating action is the result
of Moody's on-going surveillance of commercial real estate collateralized
debt obligation (CRE CDO) transactions.
Issuer: WAVE 2007-1
Cl. A-1, Downgraded to B1 (sf); previously on
May 6, 2010 Downgraded to Ba1 (sf)
Cl. A-2, Affirmed at Caa3 (sf); previously on
May 6, 2010 Downgraded to Caa3 (sf)
Cl. B, Affirmed at Ca (sf); previously on May 6,
2010 Downgraded to Ca (sf)
Cl. C, Affirmed at Ca (sf); previously on May 6,
2010 Downgraded to Ca (sf)
Cl. D, Affirmed at Ca (sf); previously on May 6,
2010 Downgraded to Ca (sf)
U.S. $1,666,666.66 Swap Transaction,
Affirmed at Aaa (sf); previously on Apr 19, 2010 Assigned Aaa
(sf)
U.S. $2,542,766.67 Swap Transaction,
Affirmed at Aaa (sf); previously on Apr 19, 2010 Assigned Aaa
(sf)
U.S. $2,690,833.33 Swap Transaction,
Affirmed at Aaa (sf); previously on Apr 19, 2010 Assigned Aaa
(sf)
U.S. $516,666.67 Swap Transaction,
Affirmed at Aaa (sf); previously on Apr 19, 2010 Assigned Aaa
(sf)
U.S. $595,591.66 Swap Transaction,
Affirmed at Aaa (sf); previously on Apr 19, 2010 Assigned Aaa
(sf)
U.S. $7,819,225 Swap Transaction,
Affirmed at Aaa (sf); previously on Apr 19, 2010 Assigned Aaa
(sf)
Issuer: WAVE 2007-2
Cl. A-1, Downgraded to A1 (sf); previously on
Feb 2, 2010 Downgraded to Aa2 (sf)
Cl. A-2, Downgraded to Ba1 (sf); previously on
May 6, 2010 Downgraded to Baa3 (sf)
Cl. B, Downgraded to Ba2 (sf); previously on May 6,
2010 Downgraded to Ba1 (sf)
Cl. C-FL, Downgraded to Ba3 (sf); previously
on May 6, 2010 Downgraded to Ba2 (sf)
Cl. C-FX, Downgraded to Ba3 (sf); previously
on May 6, 2010 Downgraded to Ba2 (sf)
Cl. D-FL, Downgraded to B2 (sf); previously on
Feb 2, 2010 Downgraded to B1 (sf)
Cl. D-FX, Downgraded to B2 (sf); previously on
Feb 2, 2010 Downgraded to B1 (sf)
Cl. E-FL, Downgraded to Caa1 (sf); previously
on Feb 2, 2010 Downgraded to B3 (sf)
Cl. E-FX, Downgraded to Caa1 (sf); previously
on Feb 2, 2010 Downgraded to B3 (sf)
Issuer: WAVE 2007-3
Cl. A-1, Downgraded to Ba2 (sf); previously on
May 6, 2010 Downgraded to Baa2 (sf)
Cl. A-2, Downgraded to Caa2 (sf); previously
on May 6, 2010 Downgraded to Caa1 (sf)
Cl. B, Downgraded to Caa3 (sf); previously on May 6,
2010 Downgraded to Caa2 (sf)
Cl. C, Affirmed at Ca (sf); previously on May 6,
2010 Downgraded to Ca (sf)
Cl. D, Affirmed at Ca (sf); previously on May 6,
2010 Downgraded to Ca (sf)
RATINGS RATIONALE
WAVE 2007-1, WAVE 2007-2 and WAVE 2007-3 are
100% backed by 2006 and 2007 vintage commercial mortgage backed
securities (CMBS). As of the February 22, 2011 trustee report
date, the aggregate collateral par amount is $6.0
billion, the same as at securitization. There have been no
paydowns or losses to the collateral pools. All three Wave transactions
feature a pro-rata principal payment structure among the Notes
with a switch to a sequential principal payment structure upon failure
of their respective senior overcollateralization and/or net par value
tests.
WAVE 2007-1 is backed by AJ tranches (95.5%) and
one AM tranche (4.5%); WAVE 2007-2 is backed
by AJ tranches (33.3%), AM tranches (29.2%)
and Super-Senior tranches (37.5%); and WAVE
2007-3 is backed by AJ tranches (100%). AJ tranches
are the junior most tranches with an original Aaa rating at securitization,
AM tranches are the mezzanine tranches, typically with an original
20% credit-enhancement level, that were rated Aaa
at securitization. Super-Senior tranches are the senior-most
tranches typically with an original 30% credit enhancement level,
that were rated Aaa at securitization.
In addition, we affirmed the Aaa (sf) ratings of the six upfront
swaps (Collectively the "Swaps") in the WAVE 2007-1
transaction assigned on March 31, 2010. Each of the Swaps
is dated as of June 18, 2007 and each is between SMBC Capital Markets,
Inc. (the "Swap Counterparty") and the Trust.
The Swap Counterparty currently has a Aa2 long term rating and a P-1
short term rating by Moody's.
Recent CMBS collateral downgrades have resulted in par value haircuts
within each CRE CDO causing each transaction to fail its respective senior
Overcollateralization Test (OC Test) and/or Net Par Value Test.
According to the most recent Trustee reports, WAVE 2007-1
is failing its Class A-1 OC Test (17.03% actual versus
a trigger of 107.40%), WAVE 2007-2 is failing
its Class A-1 OC Test (57.10% actual versus a trigger
of 105.72%), and WAVE 2007-3 is failing its
Class A-1 OC Test (23.23% actual versus a trigger
of 108.67%) as well as its Net Par Value Test (21.38%
actual versus a trigger of 99.89%). Due to the failure
of these tests, any principal proceeds due to the respective trusts
are allocated on a sequential basis.
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 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.
The bottom-dollar WARF is a measure of the default probability
within a collateral pool. We have completed updated credit estimates
for the entire pool and the results should be reflected in future Trustee
Reports.
-WAVE 2007-1: Moody's modeled a bottom-dollar
WARF of 1,665 compared to 482 at last review. The distribution
of current ratings and credit estimates is as follows: Aaa-Aa3
(0.0% compared to 10.5% at last review),
A1-A3 (6.3% compared to 21.7% at last
review), Baa1-Baa3 (34.7% compared to 44.7%
at last review), Ba1-Ba3 (27.4% compared to
18.3% at last review), B1-B3 (23.3%
compared to 4.7% at last review), Caa1-C (8.3%
compared to 0.0% at last review).
-WAVE 2007-2: Moody's modeled a bottom-dollar
WARF of 592 compared to 155 at last review. The distribution of
current ratings and credit estimates is as follows: Aaa-Aa3
(47.7% compared to 59.9% at last review),
A1-A3 (17.7% compared to 23.1% at last
review), Baa1-Baa3 (11.9% compared to 11.0%
at last review), Ba1-Ba3 (10.1% compared to
5.2% at last review), B1-B3 (11.5%
compared to 0.8% at last review). Caa1-C (1.1%
compared to 0.0% at last review).
-WAVE 2007-3: Moody's modeled a bottom-dollar
WARF of 1,048 compared to 276 at last review. The distribution
of current ratings and credit estimates is as follows: Aaa-Aa3
(0.0% compared to 1.5% at last review),
A1-A3 (11.9% compared to 49.5% at last
review), Baa1-Baa3 (47.3% compared to 41.0%
at last review), Ba1-Ba3 (24.9% compared to
8.0% at last review), B1-B3 (14.9%
compared to 0.0% at last review). Caa1-C (1.0%
compared to 0.0% at last review).
WAL acts to adjust the credit exposure of the collateral pool.
Moody's modeled to the actual WAL of 6.3 years, 6.5
years and 6.7 years for WAVE 2007-1, WAVE 2007-2
and WAVE 2007-3, respectively compared to 7.1 years,
7.3 years and 7.6 years modeled at last review, respectively.
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 28.5%, 50.0% and 30.0%
for WAVE 2007-1, WAVE 2007-2 and WAVE 2007-3,
respectively, compared to 36.3%, 57.8%
and 39.1% at last review, respectively.
MAC is a single factor that describes the pair-wise asset correlations
to default distribution among the instruments within the collateral pool
(i.e. the measure of diversity). Moody's modeled
a MAC of 34.0%, 32.9% and 39.9%
for WAVE 2007-1, WAVE 2007-2 and WAVE 2007-3,
respectively, compared to 44.1%, 46.4%
and 49.2% at last review, respectively
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® v3.2.1.0,
was used to analyze the cash flow waterfall and its effect on the capital
structure of the deal.
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 current sluggish macroeconomic environment
and varying performance in the commercial real estate property markets.
However, Moody's expects to see increasing or stabilizing property
values, higher transaction volumes, a slowing in the pace
of loan delinquencies and greater liquidity for commercial real estate
in 2011 The hotel and multifamily sectors are continuing to show signs
of recovery, while recovery in the office and retail sectors will
be tied to recovery of the broader economy. The availability of
debt capital continues to improve with terms returning toward market norms.
Moody's central global macroeconomic scenario reflects an overall sluggish
recovery through 2012, amidst ongoing individual, corporate
and governmental deleveraging, persistent unemployment, and
government budget considerations.
The principal methodologies used in this rating were "Moody's Approach
to Rating SF CDOs" published in November 2010, and "U.S.
CMBS: Moody's Approach to Rating Static CDOs Backed by Commercial
Real Estate Securities" published in June 2004.
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.
Further information on Moody's analysis of this transaction is available
on www.moodys.com.
Moody's Investors Service did not receive or take into account a
third-party due diligence report on the underlying assets or financial
instruments related to the monitoring of this transaction in the past
six months
REGULATORY DISCLOSURES
Information sources used to prepare the credit 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 Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit 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 ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service 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 the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
New York
Zhonghui (Grace) Wu
Asst Vice President - Analyst
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Deryk Meherik
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's Affirmed 12 and Downgrades 13 CRE CDO Classes of Notes Issued by WAVE SPC
