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Rating Action:

Moody's Downgrades Nine CRE CDO Classes of Sorin CDO IV, Ltd.

15 Dec 2010

Approximately $330.4 Million of Structured Securities Affected

New York, December 15, 2010 -- Moody's has downgraded nine classes of Notes issued by Sorin Real Estate CDO IV, 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), the increase of Defaulted Securities, and the sensitivity of the transaction to recovery rates. 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 Baa2 (sf); previously on Feb 19, 2010 Downgraded to A2 (sf)

Cl. A-2, Downgraded to Caa1 (sf); previously on Feb 19, 2010 Downgraded to Baa3 (sf)

Cl. A-3, Downgraded to Caa2 (sf); previously on Feb 19, 2010 Downgraded to Ba1 (sf)

Cl. B, Downgraded to Caa3 (sf); previously on Feb 19, 2010 Downgraded to Ba1 (sf)

Cl. C, Downgraded to Ca (sf); previously on Feb 19, 2010 Downgraded to B1 (sf)

Cl. D, Downgraded to C (sf); previously on Feb 19, 2010 Downgraded to B3 (sf)

Cl. E, Downgraded to C (sf); previously on Feb 19, 2010 Downgraded to B3 (sf)

Cl. F, Downgraded to C (sf); previously on Feb 19, 2010 Downgraded to Caa2 (sf)

Cl. G, Downgraded to C (sf); previously on Feb 19, 2010 Downgraded to Ca (sf)

RATINGS RATIONALE

Sorin Real Estate CDO IV, Ltd. is a revolving cash CRE CDO transaction backed by a portfolio of whole loans (12.5% of the pool balance), commercial mortgage backed securities (CMBS) (29.3%), CRE CDO debt (5.7%), B-note debt (17.9%), mezzanine debt (19.0%), REIT debt (6.5%), and Rake bonds (9.1%). As of the October 21, 2010 Trustee report, the aggregate Note balance of the transaction, including Income Notes, is $1 billion, has decreased to $368.0 million from $400 million at issuance, due to approximately $35.8 million in pay-downs to the Class A1 Notes. The pay-down was triggered as a result of the failure of the Class A/B, Class C/D, and Class E/F Principal Coverage Tests. Per the transaction governing documents, the failure of any Principal Coverage Test results in all scheduled interest and principal payments being directed to pay down the most senior notes, until the Principal Coverage Test is satisfied. The revolving period is set to end in October 2011.

There are thirteen assets with par balance of $103.7 million (29% of the current pool balance) that are classified as Defaulted Securities as of the October 21, 2010 Trustee report, compared to 19% of Defaulted Securities at last review. Moody's expects significant losses from those Defaulted Securities to occur 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 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 collateral. For non-CUSIP collateral, Moody's is eliminating the additional default probability stress applied to corporate debt in CDOROM® v2.6 as we expect the underlying non-CUSIP collateral to experience lower default rates and higher recovery compared to corporate debt due to the nature of the secured real estate collateral. The bottom-dollar WARF is a measure of the default probability within a collateral pool. Moody's modeled a bottom-dollar WARF of 5,149 (including Defaulted Securities) compared to 4,470 at last review. The distribution of current ratings and credit estimates is as follows: Aaa-Aa3 (14.1% compared to 17.9% at last review), A1-A3 (3.2% compared to 5.7% at last review), Baa1-Baa3 (15.9% compared to 4.0% at last review), Ba1-Ba3 (0.0% compared to 3.9% at last review), B1-B3 (10.2% compared to 4.3% at last review), and Caa1-C (56.6% compared to 64.2% 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 4.0 years compared to 6.0 years at last review. We are modeling the WAL, including remaining revolving period, in the current 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 30.0% (excluding Defaulted Securities) compared to 24.0% 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). For non-CUSIP collateral, Moody's is reducing the maximum over concentration stress applied to correlation factors due to the diversity of tenants, property types, and geographic locations inherent in the pooled transactions. Moody's modeled a MAC of 9.0% compared to 1.9% at last review.

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.

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 30.0% to 19.9% or up to 40.2% would result in average rating movement on the rated tranches of 0 to 2 notches downward or 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.

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.

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's information, confidential and proprietary Moody's Analytics information.

Moody's 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
Biao He
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 Nine CRE CDO Classes of Sorin CDO IV, Ltd.
No Related Data.
© 2022 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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