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Rating Action:

Moody's Downgrades 9 CRE CDO Classes of Lenox Street 2007-1, Ltd.

13 Nov 2009

Approximately $338.4 Million of Structured Securities Affected

New York, November 13, 2009 -- Moody's Investors Service (Moody's) downgraded nine classes of Notes issued by Lenox Street 2007-1, Ltd. The downgrades are due to deterioration in the credit quality of the underlying collateral portfolio and the triggering of an Event of Default (EOD) by a failure in the Default Par Value Coverage Ratio resulting from rating downgrades of the underlying collateral. Moody's also placed Class A through Class F on review for possible further downgrade due to the uncertainty about the potential remedies the Trustee may seek upon direction by a Majority of the Controlling Class.

Lenox Street 2007-1, Ltd. is a revolving commercial real estate collateralized debt obligation (CRE CDO) transaction backed by a portfolio of CMBS (20% of the pool) and synthetic assets (80% of the pool). The aggregate collateral balance of the pool has decreased to $999.6 million from $1.0 billion at issuance, due to approximately $0.6 million in pay-down to the Class G, H and I Notes. The pay-down was a result of a provision that 20% of excess interest of the deal goes to pay the Class G, H and J Notes pro rata in each payment period.

One CMBS security, one CRE CDO security and one synthetic asset totaling approximately $25.0 million (2.5% of the pool) were listed as defaulted. Moody's currently estimates $20.0 million in expected losses to the Notes due to losses on the defaulted assets (80% loss severity on average).

Moody's has identified the following parameters as key indicators of the expected loss within CRE CDO transactions: weighted average rating factor (WARF), weighted average life (WAL), weighted average recovery rate (WARR), and Moody's asset correlation (MAC). These parameters are 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. We have completed updated credit estimates for the entire pool and the results will be reflected in a future Trustee Report. The bottom-dollar WARF is a measure of the default probability within a collateral pool. Moody's modeled a bottom-dollar WARF, excluding defaulted loans, of 4,088 compared to 2,941 at last review. The distribution of current ratings and credit estimates is as follows: Baa1-Baa3 (4.4% compared to 19.8% at last review), Ba1-Ba3 (14.2% compared to 12.1% at last review), B1-B3 (49.6% compared to 46.5% at last review), Caa1-NR (31.8% compared to 21.6% at last review).

WAL acts to adjust the credit exposure of the collateral pool. Moody's modeled to the actual WAL of 7 years, compared to the covenanted WAL of 9 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, excluding defaulted loans, of 4.9% compared to 7.6% at last review.

MAC is a single factor that describes the pair-wise asset correlations among the instruments within the collateral pool (i.e. the measure of diversity). Moody's modeled a MAC, excluding defaulted loans, of 51.4% compared to 51.5% at last review.

All collateral and reference obligations are now rated at Baa3 or lower, which has resulted in over $277.1 million in par value haircuts, which have been factored into the calculations of both the Overcollateralization Test and Default Par Value Coverage Ratio. As of October 26, 2009, the Trustee reports that the transaction is currently failing its Class A/B Overcollateralization Test (80.29% actual versus a trigger of 109.96%), Class E/F Overcollateralization Test (100.46% actual versus a trigger of 101.00%) as well as its Default Par Value Coverage Ratio (98.78% actual versus a trigger of 100.00%). Due to the failure of the transaction's Overcollateralization Test, the interest due on the Class C, Class D, Class E, Class F, Class G, Class H, and Class J Notes is being treated as deferred interest payable-in-kind (PIK).

Per Section 5.1(j) of the Indenture, EOD has been triggered as a result of the Default Par Value Coverage Ratio dropped below 100%. During the occurrence and continuance of an Event of Default, a Majority of the Controlling Class to the transaction may direct the Trustee to take particular actions with respect to all or a portion of the collateral or reference obligations or rights of interest therein, including liquidation (in the case of Synthetic Assets entered into pursuant to the Synthetic Asset Agreement, designate an "Early Termination Date" under such Synthetic Asset Agreement). Moody's notes that the transaction is exposed to a significant concentration of CMBS assets, the majority of which have low investment grade and below investment grade ratings. It is also exposed to CRE CDOs with below investment grade ratings. Both types of assets have shown depressed market valuations recently and thus may result in significant losses to the transaction from any sale of cash collateral and/or any early termination of credit default swap (CDS) contracts.

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 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 action is as follows:

-Cl. A, Downgraded to B1 and remains on Review for Possible Downgrade; previously on August 14, 2009 Baa1 Placed Under Review for Possible Downgrade

-Cl. B, Downgraded to B3 and remains on Review for Possible Downgrade; previously on August 14, 2009 Baa3 Placed Under Review for Possible Downgrade

-Cl. C, Downgraded to Caa2 and remains on Review for Possible Downgrade; previously on August 14, 2009 Ba2 Placed Under Review for Possible Downgrade

-Cl. D, Downgraded to Caa2 and remains on Review for Possible Downgrade; previously on August 14, 2009 Ba3 Placed Under Review for Possible Downgrade

-Cl. E, Downgraded to Caa3 and remains on Review for Possible Downgrade; previously on August 14, 2009 Ba3 Placed Under Review for Possible Downgrade

-Cl. F, Downgraded to Caa3 and remains on Review for Possible Downgrade; previously on August 14, 2009 B1 Placed Under Review for Possible Downgrade

-Cl. G, Downgraded to Ca; previously on August 14, 2009 B2 Placed Under Review for Possible Downgrade

-Cl. H, Downgraded to Ca; previously on August 14, 2009 B2 Placed Under Review for Possible Downgrade

-Cl. J, Downgraded to C; previously on August 14, 2009 B2 Placed Under Review for Possible Downgrade

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 review is summarized in a press release dated March 19, 2009.

The principal methodologies used in rating and monitoring this transaction were "U.S. CMBS: Moody's Approach to Rating Synthetic CMBS Resecuritizations" published on December 19, 2005, "CMBS: Moody's Approach to Revolving Facilities in CDOs Backed by Commercial Real Estate Interests" published on July 29, 2004, and "Moody's Approach to Rating SF CDOs" published on August 21, 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
Deryk Meherik
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Michael M. Gerdes
Senior Vice President
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Downgrades 9 CRE CDO Classes of Lenox Street 2007-1, Ltd.
No Related Data.
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