Approximately $466.2 Million of Structured Securities Affected
New York, March 23, 2011 -- Moody's has downgraded 11 classes of Notes issued by Fairfield Street
Solar 2004-1 Ltd. Collateralized Debt Obligations ("Fairfield
2004-1 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 increase in Defaulted
Securities since last review. The rating action is the result of
Moody's on-going surveillance of commercial real estate collateralized
debt obligation (CRE CDO) transactions.
Moody's rating action is as follows:
Cl. A, Downgraded to A1 (sf); previously on Apr 28,
2010 Downgraded to Aa2 (sf)
Cl. A-2a, Downgraded to Aa3 (sf); previously
on Apr 28, 2010 Confirmed at Aa2 (sf)
Cl. A-2b, Downgraded to Baa1 (sf); previously
on Apr 28, 2010 Downgraded to Aa3 (sf)
Cl. B, Downgraded to Ba1 (sf); previously on Apr 28,
2010 Downgraded to A3 (sf)
Cl. B-2, Downgraded to Ba1 (sf); previously on
Apr 28, 2010 Downgraded to A3 (sf)
Cl. C, Downgraded to B2 (sf); previously on Apr 28,
2010 Downgraded to Baa3 (sf)
Cl. C-2, Downgraded to B2 (sf); previously on
Apr 28, 2010 Downgraded to Baa3 (sf)
Cl. D, Downgraded to Caa1 (sf); previously on Apr 28,
2010 Downgraded to Ba2 (sf)
Cl. D-2, Downgraded to Caa1 (sf); previously
on Apr 28, 2010 Downgraded to Ba2 (sf)
Cl. E, Downgraded to Caa3 (sf); previously on Apr 28,
2010 Downgraded to B1 (sf)
Cl. E-2, Downgraded to Caa3 (sf); previously
on Apr 28, 2010 Downgraded to B1 (sf)
Fairfield 2004-1 Ltd. is a static CRE CDO transaction backed
by a portfolio commercial mortgage backed securities (CMBS) (67.6%),
commercial real estate collateralized debt obligations (CRE CDO) (13.1%),
REIT debt (10.2%), CMBS Rake Bonds (4.8%),
and grantor trust loans (4.3%). As of the February
28, 2011 Trustee report, the aggregate Note balance of the
transaction has decreased to $497.1 million from $515.0
million at issuance, with the paydown directed to the Class A-1
and Class A-2a Notes, as a result of amortization due to
the end of the reinvestment end period in November 2009.
There are 25 assets with par balance of $112.3 million (19.0%
of the current pool balance) that are considered Defaulted Securities
as of the February 28, 2011 Trustee report. Twenty-two
of these assets (87.7% of the defaulted balance) are CMBS,
two assets (7.1%) are CRE CDO, and one asset (5.2%)
is a grantor trust loan. 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), weighted average recovery rate (WARR),
and Moody's asset correlation (MAC). These parameters are typically
modeled as actual parameters for static deals and as covenants for managed
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 assets. The bottom-dollar WARF is a measure of the
default probability within a collateral pool. Moody's modeled
a bottom-dollar WARF of 3,483 compared to 1,951 at
last review. The distribution of current ratings and credit estimates
is as follows: Aaa-Aa3 (10.7% compared to 18.3%
at last review), A1-A3 (10.4% compared to 8.0%
at last review), Baa1-Baa3 (15.7% compared
to 17.4% at last review), Ba1-Ba3 (20.4%
compared to 31.4% at last review), B1-B3 (8.4%
compared to 11.2% at last review), and Caa1-C
(34.5% compared to 13.6% at last review).
WAL acts to adjust the probability of default of the reference obligations
in the pool for time. Moody's modeled to a WAL of 4.7 years
compared to 6.3 years at last review.
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 25.1% compared to 32.4% 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 6.9% compared to 17.3% at
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® v220.127.116.11,
was used to analyze the cash flow waterfall and its effect on the capital
structure of the deal.
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, changing the recovery rate assumption down from 25%
to 15% or up to 35% would result in average rating movement
on the rated tranches of 2 to 3 notches downward and 1 to 3 notches upward,
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 these ratings were "Moody's
Approach to Rating SF CDOs" published in November 2010, and
"CMBS: Moody's Approach to Rating Static CDOs Backed by Commercial
Real Estate Securities" published in June 2004.
Further information on Moody's analysis of this transaction is available
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 information, and 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.
Structured Finance Group
Moody's Investors Service
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's Downgrades 11 CRE CDO Classes of Fairfield Street Solar 2004-1 Ltd. Collateralized Debt Obligations.
250 Greenwich Street
New York, NY 10007