Approximately $1.98 Billion of Structured Securities Affected
New York, March 08, 2012 -- Moody's has downgraded the ratings of nine classes of Notes issued by
WAVE 2007-2. The downgrades reflect both the correction
of an earlier analytical input error and deterioration in the credit quality
of the underlying collateral as evidenced by a decrease in the credit
quality of the pool of assets since the prior review in March 2011.
The rating action is the result of Moody's on-going surveillance
of commercial real estate collateralized debt obligation (CRE CDO and
Re-Remic) transactions.
Moody's rating action is as follows:
Cl. A-1, Downgraded to Baa3 (sf); previously
on Mar 9, 2011 Downgraded to A1 (sf)
Cl. A-2, Downgraded to B3 (sf); previously on
Mar 9, 2011 Downgraded to Ba1 (sf)
Cl. B, Downgraded to Caa1 (sf); previously on Mar 9,
2011 Downgraded to Ba2 (sf)
Cl. C-FL, Downgraded to Caa2 (sf); previously
on Mar 9, 2011 Downgraded to Ba3 (sf)
Cl. C-FX, Downgraded to Caa2 (sf); previously
on Mar 9, 2011 Downgraded to Ba3 (sf)
Cl. D-FL, Downgraded to Caa3 (sf); previously
on Mar 9, 2011 Downgraded to B2 (sf)
Cl. D-FX, Downgraded to Caa3 (sf); previously
on Mar 9, 2011 Downgraded to B2 (sf)
Cl. E-FL, Downgraded to Caa3 (sf); previously
on Mar 9, 2011 Downgraded to Caa1 (sf)
Cl. E-FX, Downgraded to Caa3 (sf); previously
on Mar 9, 2011 Downgraded to Caa1 (sf)
RATINGS RATIONALE
WAVE 2007-2 is a static CRE CDO transaction backed by a portfolio
of commercial mortgage backed securities (CMBS) (100% of the collateral
balance). The collateral consists of Super Senior bonds (37.5%),
AM bonds (29.2%) and AJ bonds (33.3%) from
28 CMBS transactions issued between 2006 and 2008. As of the February
21, 2012 Trustee report, the collateral par amount is $1.98
billion compared to $3.0 billion at securitization.
The reduction in the collateral par amount is due to an in-kind
redemption effected in September 2011. There has been no amortization
or losses to the collateral pool.
The downgrades announced today result in part from a correction to modeling
used in an earlier rating action on March 9, 2011, where the
default distribution was incorrectly calculated due to an input error.
The corrected modeling, which indicates a rating several notches
lower than the rating assigned at the last review, has been taken
into account in today's rating action.
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 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 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 724 compared to 592 at last review. The distribution of
current ratings and credit estimates is as follows: Aaa-Aa3
(46.2% compared to 47.7% at last review),
A1-A3 (15.3% compared to 17.7% at last
review), Baa1-Baa3 (12.5% compared to 11.9%
at last review), Ba1-Ba3 (11.5% compared to
10.1% at last review), B1-B3 (11.9%
compared to 11.5% at last review), and Caa1-C
(2.6% compared to 1.1% 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 5.0 years compared
to 6.5 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 48.4% compared to 50.0% 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). Moody's
modeled a MAC of 14.1% compared to 32.9% at
last review.
Moody's review incorporated CDOROM® v2.8, one of Moody's
CDO rating models, which was released on January 24, 2011.
The cash flow model, CDOEdge® v3.2.1.0,
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. In general, the rated notes are particularly
sensitive to changes in recovery rate assumptions. Holding all
other key parameters static, changing the recovery rate assumption
down from 48.4% to 58.4% or up to 38.4%
would result in average rating movement on the rated tranches of 0 to
1 notches downward and 0 to 1 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 extent of the slowdown
in growth in the current macroeconomic environment and commercial real
estate property markets. While commercial real estate property
values are beginning to move in a positive direction, a consistent
upward trend will not be evident until the volume of investment activity
increases, distressed properties are cleared from the pipeline,
and job creation rebounds. The hotel and multifamily sectors continue
to show positive signs and improvements in the office sector continue
with minimal additions to supply. However, office demand
is closely tied to employment, where unemployment remains above
long-term averages and business confidence remains below long-term
averages. Performance in the retail sector has been mixed with
lackluster Holiday sales driven by sales and promotions. Consumer
confidence remains low. Across all property sectors, the
availability of debt capital continues to improve with increased securitization
activity of commercial real estate loans supported by a monetary policy
of low interest rates. Moody's central global macroeconomic scenario
reflects: an overall downward revision of real growth forecasts
since last quarter, amidst ongoing and policy-induced banking
sector deleveraging leading to a tightening of bank lending standards
and credit contraction; financial market turmoil continuing to negatively
impact consumer and business confidence; persistently high unemployment
levels; and weak housing markets resulting in a further slowdown
in growth.
The methodologies used in this rating were "Moody's Approach to Rating
SF CDOs" published in November 2010, and "Moody's Approach to Rating
Commercial Real Estate CDOs" published in July 2011. Please see
the Credit Policy page on www.moodys.com for a copy of these
methodologies.
REGULATORY DISCLOSURES
Although this credit rating has been issued in a non-EU country
which has not been recognized as endorsable at this date, this credit
rating is deemed "EU qualified by extension" and may still
be used by financial institutions for regulatory purposes until 30 April
2012. Further information on the EU endorsement status and on the
Moody's office that has issued a particular Credit Rating is available
on www.moodys.com.
For ratings issued on a program, series or category/class of debt,
this announcement provides relevant regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides relevant regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides relevant regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
Information sources used to prepare the 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
Analytics information.
Moody's did not receive or take into account a third-party
assessment on the due diligence performed regarding the underlying assets
or financial instruments related to the monitoring of this transaction
in the past six months.
Moody's considers the quality of information available on the rated
entity, obligation or credit satisfactory for the purposes of issuing
a rating.
Moody's adopts all necessary measures so that the information it
uses in assigning a 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 the ratings disclosure page on www.moodys.com
for general disclosure on potential conflicts of interests.
Please see the ratings disclosure page on www.moodys.com
for information on (A) MCO's major shareholders (above 5%) and
for (B) further information regarding certain affiliations that may exist
between directors of MCO and rated entities as well as (C) the names of
entities that hold ratings from MIS that have also publicly reported to
the SEC an ownership interest in MCO of more than 5%. A
member of the board of directors of this rated entity may also be a member
of the board of directors of a shareholder of Moody's Corporation;
however, Moody's has not independently verified this matter.
Please see Moody's Rating Symbols and Definitions on the Rating Process
page on www.moodys.com for further information on the meaning
of each rating category and the definition of default and recovery.
Please see ratings tab on the issuer/entity page on www.moodys.com
for the last rating action and the rating history.
The date on which some ratings were first released goes back to a time
before Moody's ratings were fully digitized and accurate data may not
be available. Consequently, Moody's 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 www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Milan Parikh
Associate Analyst
Structured Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Tad Philipp
Senior Vice President
Structured Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's Downgrades Nine Classes of WAVE 2007-2
