Approximately $119.5 Million of Structured Securities Affected
New York, December 09, 2010 -- Moody's has affirmed one and downgraded one class of Notes issued by Kimberlite
CDO I, Ltd. due to the deterioration in the credit quality
of the underlying portfolio as evidenced by an increase in the weighted
average rating factor (WARF), and decrease in weighted average recovery
rate (WARR). The rating action is the result of Moody's on-going
surveillance of commercial real estate collateralized debt obligation
(CRE CDO) transactions.
Cl. A, Downgraded to Ca (sf); previously on Dec 17,
2009 Downgraded to Caa2 (sf)
Cl. B, Affirmed at Ca (sf); previously on Dec 17,
2009 Downgraded to Ca (sf)
Kimberlite CDO I, Ltd. is a currently static hybrid CRE CDO
transaction backed by a portfolio of commercial mortgage backed securities
(CMBS) (92% of the pool balance) and CRE CDOs (8%).
The current pool consists of 12% cash collateral and 88%
synthetic reference obligations. On November 13, 2009,
the transaction entered into an Event of Default (EOD) as a result of
failing the EOD par value test. As of the November 3, 2010
Note Valuation Report, the aggregate Note balance of the transaction
has increased to $254.2 million from $250.0
million at issuance, due the capitalization of deferred interest
on the PIK-able classes due to failure of the Class A/B Par Value
There are fifteen assets with par balance of $94.9 million
(12.7% of the current pool balance) that are considered
Defaulted Securities as of the October 27, 2010 Trustee report.
While there have been no realized losses to date, Moody's
does expect significant 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 credit estimates for the non-Moody's
rated reference obligations and collateral. The bottom-dollar
WARF is a measure of the default probability within a collateral pool.
Moody's modeled a bottom-dollar WARF of 7,171 compared
to 3,373 at last review. The distribution of current ratings
and credit estimates is as follows: Baa1-Baa3 (8.7%
compared to 22.0% at last review), Ba1-Ba3
(5.4% compared to 18.0% at last review),
B1-B3 (15.3% compared to 30.0% at last
review), and Caa1-C (70.6% compared to 30.0%
at last review).
WAL acts to adjust the probability of default of the reference obligations
and collateral in the pool for time. Moody's modeled to a WAL of
5.5 years compared to 6.2 years at last review.
WARR is the par-weighted average of the mean recovery values for
the reference obligations and collateral assets in the pool. Moody's
modeled a variable WARR with a mean of 3.5% compared to
8.1% 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 99.9% compared to 30.1% at
last review. The high MAC is due to higher default probability
collateral concentrated within a small number of collateral names.
The principal methodologies used in these ratings were "U.S.
CMBS: Moody's Approach to Rating Synthetic CMBS Resecuritizations"
published in December 2005, and "Moody's Approach to Rating
SF CDOs" published in November 2010.
Moody's review incorporated CDOROM® v2.6, one of Moody's
CDO rating models, which was released on May 27, 2010.
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. However, in light of the performance
indicators noted above, Moody's believes that it is unlikely
that the ratings announced today are sensitive to further change.
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 stressed macroeconomic environment
and continuing weakness in the commercial real estate and lending markets.
Moody's currently views the commercial real estate market as stressed
with further performance declines expected in a majority of property sectors.
The availability of debt capital is improving with terms returning towards
market norms. Job growth and housing price stability will be necessary
precursors to commercial real estate recovery. Overall, Moody's
central global scenario remains "hook-shaped" for 2010
and 2011; we expect overall a sluggish recovery in most of the world's
largest economies, returning to trend growth rate with elevated
fiscal deficits and persistent unemployment levels.
Further information on Moody's analysis of this transaction is available
on www.moodys.com. 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.
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.
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's information, confidential and proprietary Moody's
Moody's 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.
Asst Vice President - Analyst
Structured Finance Group
Moody's Investors Service
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's Affirms One and Downgrades One CRE CDO Class of Kimberlite CDO I, Ltd.
250 Greenwich Street
New York, NY 10007