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Related Issuers
Rating Action:

Moody's Downgrades One and Affirms Five CRE CDO Classes of Sorin Real Estate CDO III Ltd.

12 Apr 2011

Approximately $962.5 Million of Structured Securities Affected

New York, April 12, 2011 -- Moody's has downgraded one and affirmed five classes of Notes issued by Sorin Real Estate CDO III Ltd. due to an increase in weighted average rating factor (WARF), an increase in Defaulted Securities, and the current and forecasted levels of interest shortfalls. The rating action is the result of Moody's on-going surveillance of commercial real estate collateralized debt obligation (CRE CDO) transactions.

Cl. A-1B, Downgraded to Caa2 (sf); previously on Aug 13, 2010 Assigned B3 (sf)

Cl. A-2, Affirmed at C (sf); previously on May 19, 2010 Downgraded to C (sf)

Cl. B, Affirmed at C (sf); previously on May 19, 2010 Downgraded to C (sf)

Cl. D, Affirmed at C (sf); previously on May 19, 2010 Downgraded to C (sf)

Cl. C-FX, Affirmed at C (sf); previously on May 19, 2010 Downgraded to C (sf)

Cl. C-FL, Affirmed at C (sf); previously on May 19, 2010 Downgraded to C (sf)

RATINGS RATIONALE

Sorin Real Estate CDO III Ltd. is a CRE CDO transaction backed by a portfolio of commercial mortgage backed securities (CMBS) (63.4% of the pool balance), asset backed securities (25.4%) that are primarily subprime residential mortgage-backed securities, CRE CDOs (10.0%) and real estate investment trust bond (REITs) (1.4%).

As of the March 7, 2011 Trustee report, the aggregate Note balance of the transaction has decreased to $962.5 million from $971.3 million at issuance, with the paydown directed to the Class A-1B Notes; a result of failing the Class A/B overcollateralization test. A portion of the principal proceeds is currently being used to pay interest and counterparty payments on the transaction, diverting money that would be utilized to pay principal on Class A-1B.

There are nineteen assets with par balance of $152.7 million (16.2% of the current pool balance) that are considered Non-Performing Securities as of the March 7, 2011 Trustee report. Fourteen of these assets (72.4% of the defaulted balance) are ABS, two assets are CMBS (19.3%), and three assets are CDOs (8.4%). Defaulted Securities are defined as assets which are in default of regular principal or interest receipt or are rated Ca or below. While there have been limited realized losses date, Moody's does expect significant losses to occur once they are realized.

Moody's has identified the following parameters as key indicators of the expected loss within CRE CDO transactions: weighted average recovery rate (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 reference obligations. The bottom-dollar WARF is a measure of the default probability within a collateral pool. Moody's modeled a bottom-dollar WARF of 2,625 compared to 1,811 at last review. The distribution of current ratings and credit estimates is as follows: Aaa-Aa3 (13.7% compared to 20.0% at last review), A1-A3 (11.1% compared to 20.3% at last review), Baa1-Baa3 (22.7% compared to 19.1% at last review), Ba1-Ba3 (14.9% compared to 9.7% at last review), B1-B3 (14.7% compared to 13.7% at last review), and Caa1-C (23.0% compared to 17.2% at last review).

WAL acts to adjust the probability of default of the reference obligations in the pool for time. Moody's modeled to a WAL of 5.0 years compared to 5.5 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 25.6% compared to 28.4% 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 9.5% compared to 6.7% 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. Rated notes are particularly sensitive to changes in recovery rate assumptions. Holding all other key parameters static, changing the recovery rate assumption down from 26% to 16% or up to 36% 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 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 on June 17, 2004" published in July 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, 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 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
Edward Siegel
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 Five CRE CDO Classes of Sorin Real Estate CDO III Ltd.
No Related Data.
© 2019 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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