New York, October 28, 2016 -- Moody's Investors Service has assigned definitive ratings to two classes
of notes on CAS 2014-C04, a securitization designed to provide
credit protection to the Federal National Mortgage Association (Fannie
Mae) against the performance of two reference pools of mortgages totaling
approximately $40 billion. All of the Notes in the transaction
are direct, unsecured obligations of Fannie Mae, and as such
investors are exposed to the credit risk of Fannie Mae (Aaa Stable).
The complete rating action is as follows:
Issuer: Connecticut Avenue Securities, Series 2014-C04
$578.5M Cl. 1M-2 Certificate, Assigned
Baa2 (sf); previously on Nov 18, 2014 Assigned NR (sf)
$325M Cl. 2M-2 Certificate, Assigned Baa2 (sf);
previously on Nov 18, 2014 Assigned NR (sf)
RATINGS RATIONALE
CAS 2014-C04 is the fifth transaction in the Connecticut Avenue
Securities series issued by Fannie Mae. Unlike a typical RMBS transaction,
note holders are not entitled to receive any cash from the mortgage loans
in the reference pools. Instead, the timing and amount of
principal and interest that Fannie Mae is obligated to pay on the Notes
is linked to the performance of the mortgage loans in the reference pools.
CAS 2014-C04's note write-downs are determined by
pre-set, tiered severity schedules. Similar to other
fixed severity CAS securitizations, CAS 2014-C04 has a legal
final maturity of 10 years.
Moody's rating on the transaction is based on both quantitative and qualitative
analyses. This included a quantitative evaluation of the credit
quality of the reference pools and the impact of the structural mechanisms
on the credit enhancement to the notes.
Moody's base-case expected loss on the loans in the Group 1 reference
pool is 0.20%, and is expected to reach 5.80%
at a stress level consistent with a Aaa (sf) rating. The losses
result from a credit event (as defined in the transaction) rate for the
reference pool of 1.50% in the base-case and 15.75%
in a Aaa (sf) stress level, and the application of a predetermined
schedule of loss severities. Based on our assessment of the collateral
and transaction structure, the Class 1M-2 credit enhancement
is sufficient to achieve a Baa2 (sf) rating by Moody's.
Moody's base-case and Aaa expected loss on the loans in the Group
2 reference pool is 0.35%, and is expected to reach
5.75% at a stress level consistent with a Aaa(sf) rating.
The losses result from a credit event (as defined in the transaction)
rate for the reference pool of 2.25% in the base-case
and 24.00% in a Aaa(sf) stress level, and the application
of a predetermined schedule of loss severities. Based on our assessment
of the collateral and transaction structure, the Class 2M-2
credit enhancement is sufficient to achieve a Baa2 (sf) rating by Moody's.
Moody's rating approach includes an assessment of reference pool credit
events, and how those credit events impact the rated notes by simulating
cash flows through the structure. Moody's also considers the impact
of counterparty performance on the rated notes. The assigned ratings
also took into consideration the recent performance of the underlying
pools, and reflect Moody's updated default and loss projections
on the pools and the credit enhancement available to the notes.
Methodology
The principal methodology used in these ratings was "Moody's Approach
to Rating US Prime RMBS," published in February 2015. Please
see the Rating Methodologies page on www.moodys.com for
a copy of this methodology.
While assessing the ratings on this transaction, Moody's did not
deviate from its published methodology.
In addition, Moody's publishes a weekly summary of structured finance
credit ratings and methodologies, available to all registered users
of our website, www.moodys.com/SFQuickCheck.
Factors that would lead to an upgrade or downgrade of the ratings:
Up
Levels of credit protection that are higher than necessary to protect
investors against current expectations of loss could drive the ratings
up. Losses could decline from Moody's original expectations as
a result of a lower number of obligor defaults or appreciation in the
value of the mortgaged property securing an obligor's promise of payment.
Transaction performance also depends greatly on the US macro economy and
housing market.
Down
Levels of credit protection that are insufficient to protect investors
against current expectations of loss could drive the ratings down.
Losses could rise above Moody's original expectations as a result of a
higher number of obligor defaults or deterioration in the value of the
mortgaged property securing an obligor's promise of payment. Transaction
performance also depends greatly on the US macro economy and housing market.
Other reasons for worse-than-expected performance include
poor servicing, error on the part of transaction parties,
inadequate transaction governance and fraud. As an unsecured general
obligation of Fannie Mae, the ratings on the notes depend on the
rating of Fannie Mae, which Moody's currently rates Aaa.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and sensitivity
analysis, see the sections Methodology Assumptions and Sensitivity
to Assumptions of the disclosure form.
The analysis relies on an assessment of collateral characteristics to
determine the collateral loss distribution, that is, the function
that correlates to an assumption about the likelihood of occurrence to
each level of possible losses in the collateral. As a second step,
Moody's evaluates each possible collateral loss scenario using a
model that replicates the relevant structural features to derive payments
and therefore the ultimate potential losses for each rated instrument.
The loss a rated instrument incurs in each collateral loss scenario,
weighted by assumptions about the likelihood of events in that scenario
occurring, results in the expected loss of the rated instrument.
In rating this transaction, Moody's used a cash flow model
to model cash flow stress scenarios to determine the extent to which investors
would receive timely payments of interest and principal in the stress
scenarios, given the transaction structure and collateral composition.
Moody's quantitative analysis entails an evaluation of scenarios
that stress factors contributing to sensitivity of ratings and take into
account the likelihood of severe collateral losses or impaired cash flows.
Moody's weights the impact on the rated instruments based on its
assumptions of the likelihood of the events in such scenarios occurring.
For ratings issued on a program, series or category/class of debt,
this announcement provides certain 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 certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain 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.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
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.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Yvonne Tai
Asst Vice President - 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
Ola Hannoun-Costa
Vice President - Senior Analyst
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
