London, 22 August 2012 -- Moody's Investors Service downgraded 21 interest-only (IO) classes
from 20 large multi-borrower and one single borrower commercial
mortgage backed securities (CMBS) transactions issued between 2005 and
2007 due to the implementation of a global methodology for rating structured
finance IO securities.
Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF295645
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and identifies each affected issuer.
Today's ratings actions conclude the review for possible downgrade
that were initiated on 23 February 2012.
RATINGS RATIONALE
Moody's methodology addresses expected differences in cash flows
to the IO holder that arise from defaults and losses and maps them to
a credit rating. The methodology is the result of extensive analysis
into the meaning of the IO rating and how to better align IO ratings with
Moody's expected loss (EL) ratings framework. The ratings framework
approach is based on the results of our cash flow analysis. To
arrive at the ratings framework, we tested various types of IOs
using a Monte Carlo approach. Under multiple scenarios we measured
the reduction in cash flow on an IO security relative to base case scenarios
that were run off a matrix of default and recovery assumptions.
The base case scenarios assumed no credit events on the reference tranches.
Simulations stressed defaults and recoveries, but did not stress
prepayments nor extensions. Prepayments are considered non credit
events. Changes to the ratings or credit estimates of the referenced
bonds or assets will directly impact the ratings of the IO.
Based on the global methodology for rating structured finance IO securities,
the current ratings of the IO notes affected today are downgraded to the
lowest of: (i) Ba3 (sf) or (ii) the rating corresponding to the
pool's EL, including realized losses. In the case of two
IO notes referenced by pools with one or a few high quality loans,
the probability of default of the respective pools are commensurate with
an expected loss rating significantly higher than Ba3 (sf), therefore,
the ratings of the IO tranches were downgraded to levels above the cap
of Ba3 (sf).
EMEA CMBS IOs each reference a single pool of loans. As such,
the key rating parameters that influence the EL on the referenced pools
will also influence the ratings on the IO. Key rating parameters
for EMEA CMBS include Moody's default probability of the securitised loans
in the pool (both during the term and at maturity) as well as Moody's
value assessment for the properties securing these loans. Moody's
derives from those parameters an EL for the securitized pool.
Changes in any one or combination of the key parameters may have rating
implications on the loan pool that is referenced by the IO. 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. IO ratings are sensitive to changes in expected
loss of the loan pools that they reference.
The performance expectations within 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 referenced securities were
issued or assets were securitized. 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 limited
to, the performance metrics.
Primary sources of assumption uncertainty are the current stressed macro-economic
environment and continued weakness in the occupational and lending markets.
Moody's anticipates (i) delayed recovery in the lending market persisting
through 2013, while remaining subject to strict underwriting criteria
and heavily dependent on the underlying property quality, (ii) strong
differentiation between prime and secondary properties, with further
value declines expected for non-prime properties, and (iii)
occupational markets will remain under pressure in the short term and
will only slowly recover in the medium term in line with anticipated economic
recovery. Overall, Moody's central global macroeconomic scenario
is for a material slowdown in growth in 2012 for most of the world's largest
economies fueled by fiscal consolidation efforts, household and
banking sector deleveraging and persistently high unemployment levels.
We expect a mild recession in the Euro area.
As the Euro area crisis continues, the rating of the structured
finance notes remain exposed to the uncertainties of credit conditions
in the general economy. The deteriorating creditworthiness of euro
area sovereigns as well as the weakening credit profile of the global
banking sector could negatively impact the ratings of the notes.
Furthermore, as discussed in Moody's special report "Rating Euro
Area Governments Through Extraordinary Times -- An Updated
Summary," published in October 2011, Moody's is considering
reintroducing individual country ceilings for some or all euro area members,
which could affect further the maximum structured finance rating achievable
in those countries.
The methodologies used in these ratings were "Moody's Approach to Rating
Structured Finance Interest-Only Securities" published in February
2012 and "Moody's Approach to Real Estate Analysis for CMBS in EMEA:
Portfolio Analysis (MoRE Portfolio)" published in April 2006.
Please see the Credit Policy page on www.moodys.com for
a copy of these methodologies.
In rating the affected transactions, Moody's used both MoRE Portfolio
and MoRE Cash Flow to model the cash-flows and determine the loss
for the tranches. MoRE Portfolio evaluates a loss distribution
by simulating the defaults and recoveries of the underlying portfolio
of loans using a Monte Carlo simulation. This portfolio loss distribution,
in conjunction with the loss timing calculated in MoRE Portfolio is then
used in MoRE Cash Flow, where for each loss scenario on the assets,
the corresponding loss for each class of notes is calculated taking into
account the structural features of the notes. As such, Moody's
analysis encompasses the assessment of stressed scenarios.
Moody's review of the IO ratings incorporated the use of the excel based
IO Calculator Model version 1.0 which was used for both large multi-borrower
and single-borrower transactions. Moody's ratings are determined
by a committee process that considers both quantitative and qualitative
factors. Therefore, the rating outcome may differ from the
model output.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides relevant 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 relevant regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides relevant 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.
The ratings have been disclosed to the rated entities or thier designated
agent(s) and issued with no amendment resulting from that disclosure.
Information sources used to prepare each of the ratings are the following:
parties involved in the ratings, public information and confidential
and proprietary Moody's Investors Service's information.
Moody's did not receive or take into account a third party assessment
on the due diligence performed regarding the underlying assets or financial
instruments related to the monitoring of these transactions in the past
six months.
Moody's considers the quality of information available on the rated
entities, obligations or credits satisfactory for the purposes of
issuing these ratings.
Moody's adopts all necessary measures so that the information it
uses in assigning the ratings 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.
Moody's Investors Service may have provided Ancillary or Other Permissible
Service(s) to the rated entities or their related third parties within
the two years preceding the credit rating action. Please see the
special report "Ancillary or other permissible services provided
to entities rated by MIS's EU credit rating agencies" on the
ratings disclosure page on our website www.moodys.com for
further information.
In addition to the information provided below please find on the ratings
tab of the issuer page at www.moodys.com, for each
of the ratings covered, Moody's disclosures on the lead rating
analyst and the Moody's legal entity that has issued each of the
ratings.
Please see the ratings disclosure page on www.moodys.com
for general disclosure on potential conflicts of interests.
Please see the ratings disclosure page on www.moodys.com
for information on (A) MCO's major shareholders (above 5%) and
for (B) further information regarding certain affiliations that may exist
between directors of MCO and rated entities as well as (C) the names of
entities that hold ratings from MIS that have also publicly reported to
the SEC an ownership interest in MCO of more than 5%. A
member of the board of directors of this rated entity may also be a member
of the board of directors of a shareholder of Moody's Corporation;
however, Moody's has not independently verified this matter.
Please see Moody's Rating Symbols and Definitions on the Rating Process
page on www.moodys.com for further information on the meaning
of each rating category and the definition of default and recovery.
Please see ratings tab on the issuer/entity page on www.moodys.com
for the last rating action and the rating history.
The date on which some ratings were first released goes back to a time
before Moody's ratings were fully digitized and accurate data may not
be available. Consequently, Moody's 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 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.
Deniz?Yegenaga
Analyst
Structured Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Christophe de Noaillat
Associate Managing Director
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Manuel Rollmann
Associate Analys
Structured Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's Downgrades 21 EMEA CMBS Interest-Only Securities
