587 IO Classes from 418 Conduit / Fusion CMBS Transactions issued Between 1997 and 2012 Affected
New York, February 22, 2012 -- Moody's Investors Service affirmed the ratings of 148 Classes, downgraded
427 Classes, and downgraded and placed on review for possible downgrade
12 interest-only (IO) classes from 418 conduit / fusion commercial
mortgage backed securities (CMBS) transactions issued between 1997 and
2012 due to the introduction of a global methodology for rating structured
finance IO securities.
Please click on this http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF277364
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and identifies each affected issuer.
RATINGS RATIONALE
The methodology addresses expected differences in cash flows to the IO
holder that arise from defaults and losses and maps them to a credit rating.
The methodology is the result of extensive analysis into the meaning of
the IO rating and how to better align IO ratings with Moody's expected
loss (EL) ratings framework. The ratings framework approach is
based on the results of our cash flow analysis. To arrive at the
ratings framework, we tested various types of IOs using a Monte
Carlo approach. Under multiple scenarios we measured the reduction
in cash flow on an IO security relative to base case scenarios that were
run off a matrix of default and recovery assumptions. The base
case scenarios assumed no credit events on the reference tranches.
Simulations stressed defaults and recoveries, but did not stress
prepayments nor extensions. Prepayments are considered non credit
events. Changes to the ratings or credit estimates of the referenced
bonds or assets will directly impact the ratings of the IO.
IOs reference one or more bonds or loans. As such, the key
rating parameters that influence the ratings on the referenced bonds or
loans will also influence the ratings on the IO. Key rating parameters
for US CMBS include Moody's loan to value (LTV) ratio, Moody's
stressed debt service coverage ratio (DSCR) and the Herfindahl Index.
These key rating parameters are captured in the ratings and credit estimates
of the referenced bonds or loans.
Changes in any one or combination of the key parameters may have rating
implications on certain classes of rated notes that are referenced by
the IO. 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. IO ratings are sensitive
to any rating changes within the reference pool and/or changes in expected
loss.
The performance expectations within 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 referenced securities were issued or assets were securitized.
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 limited to, the performance metrics.
Primary sources of assumption uncertainty are the extent of the slowdown
in growth in the current macroeconomic environment and the commercial
real estate property markets. While commercial real estate property
markets are gaining momentum, a consistent upward trend will not
be evident until the volume of transactions increases, distressed
properties are cleared from the pipeline and job creation rebounds.
The hotel and multifamily sectors are in recovery and improvements in
the office sector continue, with fundamentals in Gateway cities
outperforming their suburban counterparts. However, office
demand is closely tied to employment, where fundamentals remain
weak, so significant improvement may be delayed. Performance
in the retail sector has been mixed with on-going rent deflation
and leasing challenges. Across all property sectors, the
availability of debt capital continues to improve with monetary policy
expected to remain supportive and interest rate hikes postponed.
Moody's central global macroeconomic scenario reflects an overall downward
revision of forecasts since last quarter, amidst ongoing fiscal
consolidation efforts, household and banking sector deleveraging,
persistently high unemployment levels, and weak housing markets
that will continue to constrain growth.
The methodologies used in these ratings were "Moody's Approach to
Rating Structured Finance Interest-Only Securities" published
in February 2012, "Moody's Approach to Rating Fusion U.S.
CMBS Transactions" published in April 2005, "Moody's
Approach to Rating U.S. CMBS Conduit Transactions"
published in September 2000, "Moody's Approach to Rating
Canadian CMBS" published in May 2000, "Moody's Approach to
Rating CMBS Large Loan/Single Borrower Transactions" published in July
2000, and "CMBS: Moody's Approach to Small Loan
Transactions" published in December 2004. Please see the
Credit Policy page on www.moodys.com for a copy of these
methodologies.
In addition, Moody's also used the Credit Tenant Lease (CTL) methodological
approach for transactions containing CTL loans. Under Moody's CTL
approach, the rating of a transaction's certificates is primarily
based on the senior unsecured debt rating (or the corporate family rating)
of the tenant, usually an investment grade rated company,
leasing the real estate collateral supporting the bonds. This tenant's
credit rating is the key factor in determining the probability of default
on the underlying lease. The lease generally is "bondable",
which means it is an absolute net lease, yielding fixed rent paid
to the trust through a lock-box, sufficient under all circumstances
to pay in full all interest and principal of the loan. The leased
property should be owned by a bankruptcy-remote, special
purpose borrower, which grants a first lien mortgage and assignment
of rents to the securitization trust. The dark value of the collateral,
which assumes the property is vacant or "dark", is then examined
to determine a recovery rate upon a loan's default. Moody's also
considers the overall structure and legal integrity of the transaction.
For deals that include a pool of credit tenant loans, Moody's currently
uses a Gaussian copula model, incorporated in its public CDO rating
model CDOROMv2.8 to generate a portfolio loss distribution to assess
the ratings.
Moody's ratings are determined by a committee process that considers both
quantitative and qualitative factors. Therefore, the rating
outcome may differ from the model output. Moody's review incorporated
the use of the excel-based IO Calculator Model version 1.0
which was used for both conduit and fusion transactions.
Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF277364
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and provides, for each of the credit
ratings covered, Moody's disclosures on the following items:
• Methodologies and Methological Approach used
• Representations and Warranties
REGULATORY DISCLOSURES
Although these credit ratings have been issued in a non-EU country
which has not been recognized as endorsable at this date, the credit
ratings are deemed "EU qualified by extension" and may still
be used by financial institutions for regulatory purposes until 30 April
2012. 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 ratings 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 these transactions
in the past six months.
Moody's considers the quality of information available on the rated
entities, obligations or credits satisfactory for the purposes of
issuing these ratings.
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.
The below contact information is provided for information purposes only.
Please see the issuer page on www.moodys.com for Moody's
regulatory disclosure of the name of the lead analyst and the office that
has issued the credit rating.
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.
Sandra Ruffin
VP - Senior Credit Officer
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 M. 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 148 IO CMBS Classes, Downgrades 427 IO Classes and Downgrades and Places on Review for Possible Downgrade 12 IO Classes
