$6.0 Billion of Structured Securities Affected
New York, May 06, 2010 -- Moody's Investors Service (Moody's) downgraded fourteen and affirmed eleven
classes of Notes issued by WAVE SPC due to deterioration in the credit
quality of the underlying portfolio as evidenced by an increase in the
weighted average rating factor (WARF) and a decrease in the weighted average
recovery rate (WARR) since our last review for two of the three WAVE deals
and increased ratings dispersion for one WAVE deal. Three transactions
are affected:
WAVE 2007-1, Ltd. (Wave 2007-1), WAVE
2007-2, Ltd. (Wave 2007-2) and WAVE 2007-3,
Ltd. (Wave 2007-3). The rating action is the result
of Moody's on-going surveillance of commercial real estate collateralized
debt obligation (CRE CDO) transactions.
WAVE 2007-1, WAVE 2007-2 and WAVE 2007-3 are
100% backed by 2006 and 2007 vintage commercial mortgage backed
securities (CMBS). As of the April 20, 2010 payment date,
the aggregate collateral par amount is $6.0 billion,
the same as at securitization. There have been no paydowns or losses
to the collateral pools. All three Wave transactions feature a
pro-rata principal payment structure among the Notes with a switch
to a sequential principal payment structure upon failure of their respective
senior overcollateralization and/or net par value tests.
WAVE 2007-1 is backed by AJ tranches (95.5%) and
one AM tranche (4.5%); WAVE 2007-2 is backed
by AJ tranches (33.3%), AM tranches (29.2%)
and Super-Senior tranches (37.5%); and WAVE
2007-3 is backed by AJ tranches (100%). AJ tranches
are the junior most tranches with an original Aaa rating at securitization,
AM tranches are the mezzanine tranches, typically with an original
20% credit-enhancement level, that were rated Aaa
at securitization. Super-Senior tranches are the senior-most
tranches typically with an original 30% credit enhancement level,
that were rated Aaa at securitization.
Recent CMBS collateral downgrades have resulted in par value haircuts
within each CRE CDO causing each transaction to fail its respective senior
Overcollateralization Test (OC Test) and/or Net Par Value Test.
According to the most recent Trustee reports, WAVE 2007-1
is failing its Class A-1 OC Test (29.63% actual versus
a trigger of 107.40%), WAVE 2007-2 is failing
its Class A-1 OC Test (61.84% actual versus a trigger
of 105.72%), and WAVE 2007-3 is failing its
Class A-1 OC Test (23.69% actual versus a trigger
of 108.67%) as well as its Net Par Value Test (21.80%
actual versus a trigger of 99.89%). Due to the failure
of these tests, any principal proceeds due to the respective trusts
are allocated on a sequential basis.
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 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.
The bottom-dollar WARF is a measure of the default probability
within a collateral pool. We have completed updated credit estimates
for the entire pool and the results should be reflected in future Trustee
Reports.
-WAVE 2007-1: Moody's modeled a bottom-dollar
WARF of 482 compared to 183 at last review. The distribution of
current ratings and credit estimates is as follows: Aaa-Aa3
(10.5% compared to 9.3% at last review),
A1-A3 (21.7% compared to 46.4% at last
review), Baa1-Baa3 (44.7% compared to 44.2%
at last review), Ba1-Ba3 (18.3% compared to
0.0% at last review), B1-B3 (4.7%
compared to 0.0% at last review).
-WAVE 2007-2: Moody's modeled a bottom-dollar
WARF of 155, the same as at last review. However, the
rating dispersion within the collateral pool has changed. The distribution
of current ratings and credit estimates is as follows: Aaa-Aa3
(59.9% compared to 53.6% at last review),
A1-A3 (23.1% compared to 28.0% at last
review), Baa1-Baa3 (11.0% compared to 12.7%
at last review), Ba1-Ba3 (5.2% compared to
4.9% at last review), B1-B3 (0.8%
compared to 0.0% at last review)..
-WAVE 2007-3: Moody's modeled a bottom-dollar
WARF of 276 compared to 257 at last review. The distribution of
current ratings and credit estimates is as follows: Aaa-Aa3
(1.5% compared to 1.5% at last review),
A1-A3 (49.5% compared to 63.1% at last
review), Baa1-Baa3 (41.0% compared to 33.4%
at last review), Ba1-Ba3 (8.0% compared to
2.0% at last review).
WAL acts to adjust the credit exposure of the collateral pool.
Moody's modeled to the actual WAL of 7.1 years, 7.3
years and 7.6 years for WAVE 2007-1, WAVE 2007-2
and WAVE 2007-3, respectively compared to 7.4 years,
7.6 years and 7.8 years modeled at last review, respectively.
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 36.3%, 57.8% and 39.1%
for WAVE 2007-1, WAVE 2007-2 and WAVE 2007-3,
respectively, compared to 41.1%, 56.9%
and 40.8% at last review, respectively.
MAC is a single factor that describes the pair-wise asset correlations
to default distribution among the instruments within the collateral pool
(i.e. the measure of diversity). Moody's modeled
a MAC of 44.1%, 46.4% and 49.2%
for WAVE 2007-1, WAVE 2007-2 and WAVE 2007-3,
respectively, compared to 58.7%, 47.1%
and 53.6% at last review, respectively
Moody's review incorporated updated asset correlation assumptions for
the commercial real estate sector consistent with one of Moody's CDO rating
models, CDOROM v2.5, which was released on April 3,
2009. These correlations were updated in light of the systemic
seizure of credit markets and to reflect higher inter- and intra-industry
asset correlations. The updated asset correlations, depending
on vintage and issuer diversity, used for CUSIP collateral (i.e.
CMBS, CRE CDOs or real estate investment trust (REIT) debt) within
CRE CDOs range from 30% to 60%, compared to 15%
to 35% previously.
The cash flow model, CDOEdge v3.2, was used to analyze
the cash flow waterfall and its effect on the capital structure of the
deal.
Today's rating actions are as follows:
WAVE 2007-1
$2.0 Billion of Structured Securities Affected
-Class U.S. $1,666,666.66
Swap Transaction, Affirmed at Aaa; previously on April 19,
2010 Published Aaa
-Class U.S. $2,542,766.67
Swap Transaction, Affirmed at Aaa; previously on April 19,
2010 Published Aaa
-Class U.S. $2,690,833.33
Swap Transaction, Affirmed at Aaa; previously on April 19,
2010 Published Aaa
-Class U.S. $516,666.67 Swap
Transaction, Affirmed at Aaa; previously on April 19,
2010 Published Aaa
- Class U.S. $595,591.66 Swap
Transaction, Affirmed at Aaa; previously on April 19,
2010 Published Aaa
-Class U.S. $7,819,225 Swap Transaction,
Affirmed at Aaa; previously on April 19, 2010 Published Aaa
-Class A-1, Downgraded to Ba1; previously on
February 2, 2010 Downgraded to A1
-Class A-2, Downgraded to Caa3; previously on
February 2, 2010 Downgraded to Ba1
-Class B, Downgraded to Ca; previously on February 2,
2010 Downgraded to Ba3
-Class C, Downgraded to Ca; previously on February 2,
2010 Downgraded to B1
-Class D, Downgraded to Ca; previously on February 2,
2010 Downgraded to B3
WAVE 2007-2
$3 Billion of Structured Securities Affected
-Class A-1, Affirmed at Aa2; previously on February
2, 2010 Downgraded to Aa2
-Class A-2, Downgraded to Baa3; previously on
February 2, 2010 Downgraded to Baa2
-Class B, Downgraded to Ba1; previously on February
2, 2010 Downgraded to Baa3
-Class C-FL, Downgraded to Ba2; previously on
February 2, 2010 Downgraded to Ba1
-Class C-FX, Downgraded to Ba2; previously on
February 2, 2010 Downgraded to Ba1
-Class D-FL, Affirmed at B1; previously on February
2, 2010 Downgraded to B1
-Class D-FX, Affirmed at B1; previously on February
2, 2010 Downgraded to B1
-Class E-FL, Affirmed at B3; previously on February
2, 2010 Downgraded to B3
-Class E-FX, Affirmed at B3; previously on February
2, 2010 Downgraded to B3
WAVE 2007-3
$1.0 Billion of Structured Securities Affected
-Class A-1, Downgraded to Baa2; previously on
February 2, 2010 Downgraded to A2
-Class A-2, Downgraded to Caa1; previously on
February 2, 2010 Downgraded to Ba3
-Class B, Downgraded to Caa2; previously on February
2, 2010 Downgraded to B1
-Class C, Downgraded to Ca; previously on February 2,
2010 Downgraded to B2
-Class D, Downgraded to Ca; previously on February 2,
2010 Downgraded to B3
As always, Moody's ratings are determined by a committee process
that considers both quantitative and qualitative factors. The rating
outcome may differ from the model output.
Moody's monitors transactions both on a monthly basis through a review
of the available Trustee Reports and a periodic basis through a full review.
Moody's prior reviews of these three transactions are summarized in the
press release dated February 2, 2010.
The principal methodologies used in rating and monitoring this transaction
were "U.S. CMBS: Moody's Approach to Rating Static
CDOs Backed by Commercial Real Estate Securities" dated June 17,
2004 and "Moody's Approach to Rating SF CDOs " dated August 14,
2009, which can be found at www.moodys.com in the
Rating Methodologies sub-directory under the Research & Ratings
tab. Other methodologies and factors that may have been considered
in the process of rating this issue can also be found in the Rating Methodologies
sub-directory 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
New York
Zhonghui (Grace) Wu
Asst Vice President - 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 Downgrades 14 and Affirms 11 CRE CDO Classes of Notes Issued by WAVE SPC