Approximately $585.4 Million of Structured Securities Affected
New York, March 30, 2011 -- Moody's has downgraded one and affirmed eleven classes of Notes issued
by LNR CDO V, LTD as the deal is experiencing extended interest
shortfalls and deteriorating credit profile across all tranches.
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 C (sf); previously on Feb 19,
2010 Downgraded to Ca (sf)
Cl. B, Affirmed at C (sf); previously on Feb 19,
2010 Downgraded to C (sf)
Cl. C-FL, Affirmed at C (sf); previously on Dec
4, 2009 Downgraded to C (sf)
Cl. C-FX, Affirmed at C (sf); previously on Dec
4, 2009 Downgraded to C (sf)
Cl. D, Affirmed at C (sf); previously on Dec 4,
2009 Downgraded to C (sf)
Cl. E, Affirmed at C (sf); previously on Dec 4,
2009 Downgraded to C (sf)
Cl. F, Affirmed at C (sf); previously on Dec 4,
2009 Downgraded to C (sf)
Cl. G, Affirmed at C (sf); previously on Dec 4,
2009 Downgraded to C (sf)
Cl. H, Affirmed at C (sf); previously on Dec 4,
2009 Downgraded to C (sf)
Cl. J, Affirmed at C (sf); previously on Dec 4,
2009 Downgraded to C (sf)
Cl. K, Affirmed at C (sf); previously on Dec 4,
2009 Downgraded to C (sf)
Cl. L, Affirmed at C (sf); previously on Dec 4,
2009 Downgraded to C (sf)
RATINGS RATIONALE
LNR CDO V, LTD is a static CRE CDO transaction backed by a portfolio
commercial mortgage backed securities (CMBS) (100% of the current
pool balance). As of the February 28, 2011 Trustee report,
the aggregate Note balance of the transaction, including Preferred
Shares is $761.2 million, the same as that at issuance.
All of the assets (100% of the current pool balance) are listed
as Impaired Collateral Assets as of the February 28, 2011 Trustee
report. While there have been realized losses of $262.6
million to date on the underlying collateral, Moody's does
expect significant losses to occur on the remaining collateral pool 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. The bottom-dollar WARF is a measure of
the default probability within a collateral pool. Moody's
modeled a bottom-dollar WARF of 10,000 compared to 8,258
at last review. The distribution of current ratings and credit
estimates is as follows: B1-B3 (0.0% compared
to 2.6% at last review), and Caa1-C (100%
compared to 97.4% 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 9.0 years compared
to 7.0 years at last review. The increased WAL is due to
changes in the distribution of collateral weighted average life within
the pool.
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 0.0% compared to 0.1% 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
MAC was not applicable to this review as all of the collateral has a bottom-dollar
WARF of 10,000.
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. Rated notes are particularly sensitive to changes
in recovery rate assumptions. However, in light of the performance
indicators noted above, Moody's believes that it is unlikely that
the ratings announced today are sensitive to further change.
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 "CMBS:
Moody's Approach to Rating Static CDOs Backed by Commercial Real Estate
Securities" published in 2004.
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, and confidential and proprietary Moody's
Analytics' information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purpose 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
Romina Padhi
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 One and Affirms Eleven CRE CDO Classes of LNR CDO V