Approximately $337.3 Million of Structured Securities Affected
New York, February 19, 2010 -- Moody's Investors Service (Moody's) downgraded nine classes of Notes issued
by Sorin Real Estate CDO IV Ltd. due to deterioration in the credit
quality of the underlying portfolio as measured by deterioration in the
weighted average rating factor (WARF). The rating action,
which concludes our current review, is the result of Moody's
on-going surveillance of commercial real estate collateralized
debt obligation (CRE CDO) transactions.
Sorin Real Estate CDO IV Ltd. is a revolving CRE CDO transaction
backed by a portfolio of commercial mortgage backed securities (CMBS)
collateral (39% of the pool, including rake bonds),
whole loan debt (9% of the pool), B-note debt (20%
of the pool), mezzanine debt (19% of the pool), CRE
CDO collateral (5% of the pool), and commercial real estate
bank loans and term loans (8% of the pool). As of January
21, 2010, the aggregate Notes balance of the transaction,
including the Income Notes, has decreased to $374.9
million from $400 million at issuance, due to approximately
$28 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 Indenture, 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
Ten assets totaling over $91 million par amount (24% of
the pool) were listed as defaulted as of January 21, 2010.
One of these defaulted collateral, Eastridge Mall B-note
(5% of the pool), is expected to return to performing status
soon. For the remaining nine defaulted collateral assets,
Moody's currently estimates over $64 million in expected
losses to the Notes (over 80% loss severity on average).
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).
WARF is a primary measure of the credit quality of a CRE CDO pool.
Tranched WARF is adjusted by the component tranches of the collateral
assets. The tranched WARF was 1,565 as of the January 21,
2010 Trustee Report. 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 3,162 compared to
1,629 at last review.
WAL acts to adjust the probability of default of the collateral pool for
time. Moody's modeled to the covenanted WAL of six years,
the same as at last review.
WARR is the par-weighted average of the mean recovery values for
the collateral assets in the pool. The WARR was 35.8%
as of the January 21, 2010 Trustee Report. Moody's modeled
the covenanted WARR of 24%, the same as 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, excluding defaulted loans, of 2% compared
to 12% at last review.
Moody's review also 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 of 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.
For non-CUSIP collateral (treated in CDOROM v2.5 as secured
corporate debt), the updated asset correlations are approximately
30% compared to 15% previously. The updated asset
correlations for non-CUSIP collateral reflect a reduction in the
maximum over-concentration stress by half in CDOROM v2.5
due to the diversity of tenants, property types and geographic locations
inherent in the collateral pools.
The cash flow model, CDOEdge v3.2, was used to analyze
the cash flow waterfall and its effect on the capital structure of the
As always, Moody's ratings are determined by a committee process
that considers both quantitative and qualitative factors. Therefore,
the rating outcome may differ from the model output.
Today's rating actions are as follows:
Class. A1, Downgraded to A2; previously on November
13, 2009 Aaa Placed Under Review for Possible Downgrade
Class A2, Downgraded to Baa3; previously on November 13,
2009 Aa2 Placed Under Review for Possible Downgrade
Class A3, Downgraded to Ba1; previously on November 13,
2009 Aa3 Placed Under Review for Possible Downgrade
Class B, Downgraded to Ba1; previously on November 13,
2009 A1 Placed Under Review for Possible Downgrade
Class C, Downgraded to B1; previously on November 13,
2009 Baa1 Placed Under Review for Possible Downgrade
Class D, Downgraded to B3; previously on November 13,
2009 Ba1 Placed Under Review for Possible Downgrade
Class E, Downgraded to B3; previously on November 13,
2009 Ba2 Placed Under Review for Possible Downgrade
Class F, Downgraded to Caa2; previously on November 13,
2009 B2 Placed Under Review for Possible Downgrade
Class G, Downgraded to Ca; previously on November 13,
2009 Caa3 Placed Under Review for Possible Downgrade
Moody's monitors transactions on both a monthly basis through a review
of the available Trustee Reports and a periodic basis through a full review.
Moody's prior full review is summarized in a press release dated March,
The principal methodologies used in rating and monitoring this transaction
are "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.
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service
Moody's Downgrades Nine CRE CDO Classes of Sorin IV
Michael M. Gerdes
Senior Vice President
Structured Finance Group
Moody's Investors Service