Approximately $387.5 million of Structured Securities Affected
New York, December 01, 2010 -- Moody's has downgraded eight classes of Notes issued by Cedarwoods CRE
CDO, Ltd. due to the deterioration in the credit quality
of the underlying portfolio as evidenced by an increase in the weighted
average rating factor (WARF) and the current level of Defaulted Securities.
The rating action is the result of Moody's on-going surveillance
of commercial real estate collateralized debt obligation (CRE CDO) transactions.
Cl. A-1, Downgraded to A1 (sf); previously on
Mar 9, 2009 Downgraded to Aa1 (sf)
Cl. A-2, Downgraded to Baa3 (sf); previously
on Mar 9, 2009 Downgraded to A1 (sf)
Cl. A-3, Downgraded to Ba2 (sf); previously on
Mar 9, 2009 Downgraded to A3 (sf)
Cl. B, Downgraded to B1 (sf); previously on Mar 9,
2009 Downgraded to Baa2 (sf)
Cl. C, Downgraded to Caa1 (sf); previously on Mar 9,
2009 Downgraded to Ba3 (sf)
Cl. D, Downgraded to Caa2 (sf); previously on Mar 9,
2009 Downgraded to B2 (sf)
Cl. E, Downgraded to Caa3 (sf); previously on Mar 9,
2009 Downgraded to B3 (sf)
Cl. F, Downgraded to Caa3 (sf); previously on Mar 9,
2009 Downgraded to Caa1 (sf)
Cedarwoods CRE CDO, Ltd. is a revolving CRE CDO transaction
backed by commercial mortgage backed securities (CMBS) (73.6%
of the pool balance), CRE CDOs (21.7%) real estate
investment trust (REIT) debt securities (4.7%) and one rake
bond which is less than 0.1% of the pool. As of the
November 19, 2010 Trustee report, the aggregate Note balance
of the transaction has remained at $400.0 million,
the same as at issuance. The revolving period is set to end in
There are seventeen assets with a par balance of $67.6 million
(12.6% of the current pool balance) that are considered
Defaulted Securities as of the November 19, 2010 Trustee report.
There are also four assets with a par balance $24.9 million
(4.6% of the current pool balance) that are considered Deferred
Interest PIK securities. Moody's expects significant losses
to occur from the Defaulted Securities and Deferred Interest PIK securities
once they are realized.
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
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 collateral. The bottom-dollar WARF is a measure of
the default probability within a collateral pool. Moody's
modeled a bottom-dollar WARF of 3,541 compared to 1,792
at last review. The distribution of current ratings and credit
estimates is as follows: Aaa-Aa3 (3.5% compared
to 0.4% at last review), A1-A3 (10.8%
compared to 7.4% at last review), Baa1-Baa3
(25.3% compared to 46.1% at last review),
Ba1-Ba3 (15.3% compared to 21.1% at
last review), B1-B3 (12.1% compared to 10.5%
at last review), and Caa1-C (33.0% compared
to 14.2% at last review).
WAL acts to adjust the probability of default of the collateral in the
pool for time. Moody's modeled to a WAL of 8.0 years,
reflecting the remaining revolving period, compared to 7.9
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 of 17.1% compared to 17.8% 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 10.4% compared to 11.6% at
Moody's review incorporated CDOROM® v2.6, one of Moody's
CDO rating models, which was released on May 27, 2010.
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.
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. Rated notes are particularly sensitive to changes
in recovery rate assumptions. Holding all other key parameters
static, changing the recovery rate assumption down from 17.1%
to 7.1% or up to 27.1% would result in average
rating movement on the rated tranches of 0 to 2 notches downward and 0
to 2 notches upward, respectively.
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 stressed macroeconomic environment
and continuing weakness in the commercial real estate and lending markets.
Moody's currently views the commercial real estate market as stressed
with further performance declines expected in a majority of property sectors.
The availability of debt capital is improving with terms returning towards
market norms. Job growth and housing price stability will be necessary
precursors to commercial real estate recovery. Overall, Moody's
central global scenario remains "hook-shaped" for 2010
and 2011; we expect overall a sluggish recovery in most of the world's
largest economies, returning to trend growth rate with elevated
fiscal deficits and persistent unemployment levels.
The principal methodologies used in these ratings were "CMBS: Moody's
Approach to Revolving Facilities in CDOs Backed by Commercial Real Estate
Interests" published in July 2004, and "Moody's Approach to
Rating SF CDOs" published in November 2010.
Further information on Moody's analysis of this transaction is available
on www.moodys.com. 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.
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.
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, and confidential and proprietary Moody's
Moody's Investors 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.
Structured Finance Group
Moody's Investors Service
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's Downgrades Eight CRE CDO Classes of Cedarwoods CRE CDO, Ltd.
250 Greenwich Street
New York, NY 10007