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Rating Action:

Moody's Affirms One and Downgrades One CRE CDO Classes of MSRR 2009-GG10

07 Oct 2010

Approximately $1.1 Billion of Structured Securities Affected

New York, October 07, 2010 -- Moody's Investors Service (Moody's) affirmed one class and downgraded one classes of Certificates issued by Morgan Stanley Re-REMIC Trust, Series 2009-GG10. The rating action is the result of the October 5, 2010 downgrade of the Deposited Underlying Certificates and Moody's on-going surveillance of commercial real estate collateralized debt obligation (CRE CDO) transactions.

Moody's rating action is as follows:

Cl. A4A, Affirmed at Aaa (sf); previously on Jun 30, 2009 Assigned Aaa (sf)

Cl. A4B, Downgraded to A3 (sf); previously on Sep 23, 2010 A1 (sf) Placed Under Review for Possible Downgrade

RATINGS RATIONALE

Morgan Stanley Re-REMIC Trust, Series 2009-GG10 is a Re-REMIC Pass Through Trust backed by $1.1 billion, or 30.0% of the aggregate class principal balance, of the super senior Class A-4 commercial mortgage backed securities (CMBS) Certificates issued by GS Mortgage Securities Corporation II, Commercial Pass-Through Certificates, Series 2007-GG10 (Deposited Underlying Certificates). The Re-REMIC Pass through Trust was initially rated on June 29, 2009 and subsequently upsized on January 22, 2010 and again on March 29, 2010.

On October 5, 2010, Moody's downgraded the Class A-4 Certificates of GS Mortgage Securities Corporation II, Commercial Mortgage Pass-Through Certificates, Series 2007-GG10 (GSMS 2007-GG10) due to negative credit migration of the underlying collateral and higher expected losses for the pool. Moody's rating action for GSMS 2007-GG10 reflected a base expected loss of 16% of the current balance. Moody's also reported a stressed scenario loss of 30% of the current balance for the transaction. Depending on the magnitude, severity, and timing of losses from specially serviced loans and the balance of the pool, along with any loan payoffs, sequential paydowns may not reach this (these) class (classes). At the same time, losses are likely to erode the credit enhancement cushion for the super senior classes creating a potential differential in expected loss between those super senior classes benefiting first from paydowns and those classes receiving paydowns last. Although Moody's believes that it is unlikely that the Class A-4 CMBS Certificates (Deposited Underlying Certificates) will actually experience losses, the expected level of credit enhancement and the class priority in the cash flow waterfall is insufficient to maintain the A1 rating on Class A4B from the Re-REMIC Pass through Trust.

Updates to key parameters, including the constant default rate (CDR), constant prepayment rate (CPR), weighted average life (WAL), and weighted average recovery rate (WARR), did not materially change the expected loss estimate of Class A4A from the Re-REMIC Pass Through Trust resulting in an affirmation. The downgrade of Class A4B was due to deterioration in the credit quality of the underlying collateral associated with the Deposited Underlying Certificates.

When assigning and monitoring the ratings on the CRE CDO Certificates, Moody's applied ratings-specific cash flow scenarios assuming different loss timing, recovery and prepayment assumptions on the underlying pool of mortgages that are the collateral for the underlying CMBS transaction through Structured Finance Workstation® (SFW), the cash flow model developed by Moody's Wall Street Analytics. The analysis incorporates performance variances across the different pools and the structural features of the transaction including priorities of payment distribution among the different tranches, tranche average life, current tranche balance and future cash flows under expected and stressed scenarios. In each scenario, cash flows and losses from the underlying collateral were analyzed applying different stresses at each rating level. The resulting ratings specific stressed cash flows were then input into the structure of the resecuritization to determine expected losses for each class. The expected losses were then compared to the idealized expected loss for each class to gauge the appropriateness of the existing rating. The stressed assumptions considered, among other factors, the underlying transaction's collateral attributes, past and current performance, and Moody's current negative performance outlook for commercial real estate.

Within the resecuritization, the WAL of the Class A-4 Certificates of GSMS 2007-GG10 is 6.5 years assuming a 0%/0% CDR/CPR. Expected recovery rates at the mortgage loan level ranged from 40% to 60% with a WARR of 54.25%.

Since the ratings of the CRE CDO Certificates are linked to the rating of the underlying CMBS certificate which in turn are linked to the performance of the underlying commercial mortgage pool, any rating action on the underlying certificate may trigger a review of the ratings of the Certificates.

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 for GSMS 2007-GG10, changing the recovery rate assumption down from 50% to 45% would result in average rating movement of 1 notch downward on the lowest A1 rated class from GSMS 2007-GG10.

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.

The principal methodology used in rating Morgan Stanley Re-REMIC Trust, Series 2009-GG10 was "U.S. CMBS: Moody's Approach to Rating Static CDOs Backed by Commercial Real Estate Securities" rating methodology published in June 2004. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found on Moody's website. 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 6 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 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
Biao He
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.

Moody's Affirms One and Downgrades One CRE CDO Classes of MSRR 2009-GG10
No Related Data.
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