Approximately $169.4 Million of Structured Securities Affected
New York, June 03, 2011 -- Moody's has downgraded six classes of Notes issued by ARCap 2003-1
Resecuritization Trust due to the deterioration in the credit quality
of the underlying portfolio as evidenced by an increase in the weighted
average rating factor (WARF) and decrease in weighted average recovery
rate (WARR). The rating action is the result of Moody's on-going
surveillance of commercial real estate collateralized debt obligation
(CRE CDO) transactions.
Moody's rating action is as follows:
Cl. A, Downgraded to Baa1 (sf); previously on Jul 8,
2010 Downgraded to Aa3 (sf)
Cl. B, Downgraded to Ba3 (sf); previously on Jul 8,
2010 Downgraded to Baa2 (sf)
Cl. C, Downgraded to B3 (sf); previously on Jul 8,
2010 Downgraded to Baa3 (sf)
Cl. D, Downgraded to Caa1 (sf); previously on Jul 8,
2010 Downgraded to Ba1 (sf)
Cl. E, Downgraded to Caa2 (sf); previously on Jul 8,
2010 Downgraded to Ba2 (sf)
Cl. F, Downgraded to Caa3 (sf); previously on Jul 8,
2010 Downgraded to B1 (sf)
ARCap 2003-1 Resecuritization Trust is a static CRE CDO transaction
backed by a portfolio commercial mortgage backed securities (CMBS) (100.0%
of the pool balance). As of the May 20, 2011 Trustee report,
the aggregate Note balance of the transaction has decreased to $408.0
million from $414.4 million at issuance, with the
paydown directed to the Class A Notes. The paydown was due to amortization
of the collateral and Defaulted Secutires Interest Proceeds being classified
as Principal Proceeds. The current collateral par amount is $364.0
million, representing approximately $50.4 million
decrease, due mainly to $46.9 million of realized
losses to the collateral pool since securitization.
Moody's has identified the following parameters as key indicators of the
expected loss within CRE CDO transactions: WARF, weighted
average life (WAL), 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 7,355 compared to 3,026
at last review. The distribution of current ratings and credit
estimates is as follows: Aaa-Aa3 (2.0% compared
to 0.0% al last review), A1-A3 (0.3%
compared to 1.2% at last review), Baa1-Baa3
(0.0% compared to 0.8% at last review),
Ba1-Ba3 (9.4% compared to 38.2% at
last review), B1-B3 (13.0% compared to 42.5%
at last review), and Caa1-C (75.3% 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 2.9 years
compared to 3.5 years at last review.
WARR is the par-weighted average of the mean recovery values for
the collateral assets in the pool. Due to the speculative-grade
collateral, Moody's modeled a fixed 4.2% WARR,
compared to 6.5% 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 100.0% compared to 26.8%
at last review. The high MAC is due to a small number of high credit
risk collateral names.
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® v188.8.131.52,
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 4.2%
to 0.0% or up to 9.2% would result in average
rating movement on the rated tranches of 0 to 2 notches downward or 0
to 4 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 methodology used in these ratings was "Moody's Approach
to Rating SF CDOs" published in November 2010.
The other methodology used in these ratings was "CMBS: Moody's Approach
to Rating Static CDOs Backed by Commercial Real Estate Securities" published
in June 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.
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
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.
Structured Finance Group
Moody's Investors Service
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's Downgrades Six CRE CDO Classes of ARCap 2003-1 Resecuritization Trust
250 Greenwich Street
New York, NY 10007