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I AGREE
30 Jan 2009
Approximately $20.0 Million of Debt Securities Affected
New York, January 30, 2009 -- Moody's Investors Service downgraded the rating of Salisbury International
Investments Limited Series 2005-05 USD 20,000,000 Class
A Secured Floating Rate Portfolio Credit Linked Notes due 2025.
The rating action is as follows:
-Class A, $20,000,000, Floating
Rate Notes Due 2025, downgraded to A1 from Aa2; previously
on 12/19/2008 Placed Under Review for Possible Downgrade
Moody's downgraded class A, due to systematic increases in
real estate risk, and revised modeling parameters, as outlined
below.
The pool contains 100.0% concentration in CMBS reference
obligations issued between 2004 and 2005. The overall average current
credit quality of the underlying reference obligations is Aaa.
Moody's expects the aggregate default rate on CMBS loans (0.95%
as of December 2008) to revert to its long-term historical average
of 1.5% to 2.0% in 2009, and most likely
to surpass this level as the market begins to form a bottom in 2010 and
2011. Commercial property values, which have declined about
10% from the peak reached in October 2007, are expected to
decline an additional 10 to 20% over the next 18 to 24 months.
Moody's has also revised three key parameters in Moody's model for rating
and monitoring CRE CDOs --asset correlation, default
probability, and recovery rate. These revisions are consistent
with recent revisions to the key parameter assumptions for rating and
monitoring other collateralized debt obligation transactions backed by
structured finance securities ("ABS CDOs").
We have updated our asset correlation assumption for the commercial real
estate sector to be consistent with an upcoming release of our CDO rating
model, CDOROM v2.5, which will incorporate these new
parameters. Previously, the average asset correlations used
for CMBS within CRE CDO deals ranged between 15% and 35%,
depending on vintage and issuer diversity. In light of the systematic
seizure of the credit markets, as well as higher intra industry
and inter industry asset correlations, the updated correlation parameters
for CRE CDOs will imply an average range of asset correlations of between
30% and 60% for CMBS collateral.
Moody's has previously stated that CRE CDO deals with collateral concentrations
in below-investment-grade CMBS certificates will likely
be among the first transactions to be affected by credit issues that arise,
and that the additional leverage inherent in these deals creates the potential
for greater ratings transitions compared to that of a first order transaction
(i.e., those containing non-CUSIP assets).
We have expanded the scope of our concern to include investment-grade
CMBS certificates as well. In 2007, we began applying a default
probability stress on late-vintage CMBS collateral to partially
offset the leverage effect in CRE CDO deals that can amplify the effect
of adverse changes in their underlying collateral performance.
Moody's has noted in the past that tenant, property type,
and loan size diversification may help performance at the bond level;
however, the nature of the current recession is likely to be different
from prior recessions, potentially muting the benefits of diversification.
In our analysis of CRE CDOs, we historically have employed a fixed
recovery rate by original tranche rating. Our current analysis
uses a floating recovery rate model with a mean recovery rate based on
the asset rating and a simulation of potential recovery rates around the
mean. With this more robust approach, we expect to capture
in our ratings more of the tail risk associated with variability of recovery
rates.
As always, Moody's ratings are determined by a committee process
that considers both quantitative and qualitative factors. The rating
outcome may differ from the model output.
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. This is Moody's first review since securitization.
The principal methodology used in rating and monitoring this transaction
is "U.S. CMBS: Moody's Approach to Rating Synthetic
CMBS Resecuritizations" dated December 19, 2005, which
can be found at www.moodys.com in the Credit Policy &
Methodologies directory, in the Ratings Methodologies subdirectory.
Other methodologies and factors that may have been considered in the process
of rating this issue can also be found in the Credit Policy & Methodologies
directory.
New York
Deryk Meherik
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Michael M. Gerdes
Senior Vice President
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's Downgrades Salisbury International Investments Limited Series 2005-05
No Related Data.
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