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I AGREE
23 Mar 2011
Approximately €64.2 Million and $15.8 Million of Structured Securities Affected
New York, March 23, 2011 -- Moody's has downgraded all classes of Notes issued by Halcyon 2005-2,
Ltd. Two of the key indicators of the expected loss within CRE
CDO transactions, weighted average rating factor (WARF) and weighted
average recovery rate (WARR), are performing worse than at prior
review. The rating action is the result of Moody's on-going
surveillance of commercial real estate collateralized debt obligation
(CRE CDO) transactions.
Cl. A, Downgraded to Ba3 (sf); previously on May 19,
2010 Downgraded to Baa3 (sf)
Cl. B, Downgraded to Caa1 (sf); previously on May 19,
2010 Downgraded to Ba2 (sf)
Cl. C, Downgraded to Caa3 (sf); previously on May 19,
2010 Downgraded to Ba3 (sf)
RATINGS RATIONALE
Halcyon 2005-2, Ltd. is a static synthetic CRE CDO
transaction backed by a reference portfolio of commercial mortgage backed
securities (CMBS) collateral (100.0% of the pool).
As of February 25, 2011, the aggregate rated Notes balance
of the transaction is €64.2 million and $15.8
million, the same as at issuance. As of the last payment
period, there is a nominal interest shortfall outstanding on the
Class C Notes.
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
deals.
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 reference obligations. The bottom-dollar WARF is a
measure of the default probability within a collateral pool. Moody's
modeled a bottom-dollar WARF of 238 compared to 65 at last review.
The distribution of current ratings and credit estimates is as follows:
Aaa-Aa3 (26.7% compared to 76.7% at
last review), A1-A3 (46.7% compared to 20.0%
at last review), Baa1-Baa3 (23.3% compared
to 3.3% at last review) and B1-B3 (3.3%
compared to 0.0% 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 4.0 years
compared to 4.5 years at last review.
WARR is the par-weighted average of the mean recovery values for
the collateral reference obligations in the pool. Moody's
modeled a fixed WARR of 46.3% compared to 54.7%
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 48.1% compared to 59.0% at
last review.
Moody's review incorporated CDOROM® v2.8, one of Moody's
CDO rating models, which was released on January 24, 2011.
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. In general, the rated Notes are particularly
sensitive to rating changes within the collateral pool. Holding
all other key parameters static, stressing all of the reference
obligations by 1 notch downward, the resulting impact negatively
affects the model results between 1 to 2 notch downward on average.
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 "U.S.
CMBS: Moody's Approach to Rating Synthetic CMBS Resecuritizations"
published in December 2005.
Further information on Moody's analysis of this transaction is available
on www.moodys.com.
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.
REGULATORY DISCLOSURES
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, confidential and proprietary Moody's
Analytics' information.
Moody's Investor Service 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.
New York
Edward Siegel
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 Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's Downgrades All CRE CDO Classes of Halcyon 2005-2, Ltd.
No Related Data.
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