New York, June 09, 2017 -- Moody's Investors Service has downgraded the ratings of 552 Interest-Only
(IO) bonds and upgraded the ratings of 119 IO bonds backed by US residential
mortgage-backed bonds or collateral pools backed by US residential
mortgage loans (RMBS), from 484 RMBS transactions issued by multiple
issuers. The rating actions result from the adoption of an updated
approach to rating interest-only securities; some of today's
actions also reflect the correction of errors, as further described
below. The rating downgrades average between 1 and 2 notches whereas
the upgrades average 1 notch.
Please click on the following link to access the full list of affected
credit ratings. This list is an integral part of this press release
and identifies each affected rating, as well as factors driving
each rating action and the methodologies used.
http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF453777
RATINGS RATIONALE
Today's rating actions follow the publication of "Moody's
Approach to Rating Structured Finance Interest-Only (IO) Securities"
published on 8 June 2017 (the "updated IO methodology") and
reflect the rating impact of our updated approach incorporating performance
information as of the April 2017 remittance date.
Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF453777
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and provides, for each of the credit
ratings covered, Moody's disclosures on the following items:
-Principal Methodologies
The updated IO methodology modifies Moody's approach to rating IO
securities referencing multiple bonds and single or multiple collateral
pools with realized losses. References made to the exclusion of
certain IO securities in the previous methodology were removed.
In addition, a description was added to explain when an IO bond
is treated as having effectively matured and results in the withdrawal
of the rating. The updated IO methodology explains that Moody's
will limit the rating of an IO security to no more than 5 notches above
the rating of the lowest credit quality reference bond or rating that
would be assigned based on the assessment of the default probability of
the reference pool(s), as applicable, and clarifies that the
collateral pool's default probability typically will be treated
as equivalent to a Ca(sf) if a loss is expected on the pool. The
updated IO methodology also explains that Moody's 10-year
Idealised Cumulative Expected Loss Rates table will be used to determine
the rating of the IOs referencing multiple bonds and IOs backed by single
or multiple pools as well as how the table is used when the loss level
falls between two rating categories.
This press release is not intended to provide a summary of the updated
IO methodology. For a full explanation of the methodology,
please consult the updated report, now available on www.moodys.com
and accessible at: https://www.moodys.com/research/Moodys-updates-its-approach-for-rating-structured-finance-interest-only--PR_367970
Today's rating action includes 85 IO PO bonds. IO PO bonds
have two components, one being an IO component and the other a principal-only
(PO) component. The rating of the IO PO bonds is the weighted average
(using Moody's 10-year Idealised Cumulative Expected Loss
Rates table) of the IO component rating, based on the updated IO
methodology, and the PO component rating, based on the "US
RMBS Surveillance Methodology," published on 31 January 2017.
In applying the updated IO methodology, we discovered an error in
a number of IO ratings assigned under the prior version of the IO rating
methodology, "Moody's Approach to Rating Structured
Finance Interest-Only Securities," published on 20
October 2015 ("prior IO methodology"). Under the prior
IO methodology, the ratings of certain IOs -- those referencing
multiple bonds, or single or multiple pools -- were determined
by mapping either the weighted average factor (WARF) of the bonds,
or the expected loss (EL) of the pool(s), to a rating using a table.
For 301 of the bonds in today's rating action, the mapping
in prior rating actions was incorrect, resulting in the assignment
of ratings 1 to 2 notches lower than called for under the proper mapping.
Today's action on these bonds reflects the correction of the mapping
error, the upward impact of which correction was offset in some
cases by the downward impact of the updated IO methodology.
In addition to the mapping error, today's rating action also
includes the correction of other errors on 29 IO bonds, as described
below.
The ratings of 12 IO bonds were incorrectly linked to the wrong bond(s)
or pool(s) in prior rating actions. These errors have been corrected,
and today's rating action reflects the appropriate linkage of each
such IO bond to its proper reference bond(s) or pool(s), as well
as the application of the updated IO methodology.
The ratings of 6 IO bonds were not contemporaneously updated to reflect
changes in the rating of their referenced bonds. In prior rating
actions, the rating(s) of the reference bonds were updated but we
did not make the corresponding change to the rating of the linked IO.
Today's rating action corrects these errors and also applies the
updated IO methodology to these IO bonds.
The ratings of 6 IO bonds used incorrect inputs into the calculation of
the weighted average rating factor under the prior IO methodology.
Today's rating action corrects these input errors and applies the
updated IO methodology to these IO bonds.
The ratings of 5 IO PO bonds did not reflect the application of the prior
IO rating methodology for the interest-only component. Today's
rating action applies the updated IO methodology to the IO component of
these IO PO bonds.
In addition, there are 1133 IO bond ratings that may, in the
past, have been subject to the mapping error described above,
but which are not part of today's rating action because their current
ratings are appropriately positioned under the updated IO methodology.
We are reviewing these 1133 IO bonds to determine whether they were subject
to the mapping error in earlier actions, and we will communicate
our findings to the market as a matter of transparency.
A list of these 1133 IO bonds may be found at:
http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF453776
Regardless of our findings, the ratings of these 1133 IO bonds are
not expected to change because the ratings are appropriately positioned
under the updated IO methodology.
Factors that can lead to an upgrade or downgrade of the ratings:
An IO bond may be upgraded or downgraded, within the constraints
and provisions of the updated IO methodology, based on lower or
higher realized and expected loss due to an overall improvement or decline
in the credit quality of the reference bonds and/or pools.
For more information please see www.moodys.com.
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 includes an assessment of collateral characteristics and
performance to determine the expected collateral loss or a range of expected
collateral losses or cash flows to the rated instruments. As a
second step, Moody's estimates expected collateral losses or cash
flows using a quantitative tool that takes into account credit enhancement,
loss allocation and other structural features, to derive the expected
loss for each rated instrument.
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.
The below contact information is provided for information purposes only.
Please see 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
the ratings.
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.
Soumya Vasudevan
Asst Vice President - Analyst
Structured Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Youriy Koudinov
VP - Sr Credit Officer/Manager
Structured Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
