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Rating Action:

Moody's Downgrades Three and Affirms Nine CRE CDO Classes of N-Star Real Estate CDO IX, Ltd.

30 Mar 2011

Approximately $772 Million of Structured Securities Affected

New York, March 30, 2011 -- Moody's has downgraded three and affirmed nine classes of Notes issued by N-Star Real Estate CDO IX, Ltd. due to the deterioration in the credit quality of the underlying portfolio as evidenced by an increase in the weighted average rating factor (WARF), a decrease in the weighted average recovery rate (WARR), and an increase in defaulted assets since last review. The rating action is the result of Moody's on-going surveillance of commercial real estate collateralized debt obligation (CRE CDO) transactions.

Cl. A-1, Downgraded to Ba3 (sf); previously on Apr 28, 2010 Downgraded to Baa2 (sf)

Cl. A-2, Downgraded to Caa1 (sf); previously on Apr 28, 2010 Downgraded to B2 (sf)

Cl. A-3, Downgraded to Caa2 (sf); previously on Apr 28, 2010 Downgraded to Caa1 (sf)

Cl. B, Affirmed at Caa2 (sf); previously on Apr 28, 2010 Downgraded to Caa2 (sf)

Cl. C, Affirmed at Caa3 (sf); previously on Apr 28, 2010 Downgraded to Caa3 (sf)

Cl. D, Affirmed at Caa3 (sf); previously on Apr 28, 2010 Downgraded to Caa3 (sf)

Cl. E, Affirmed at Caa3 (sf); previously on Apr 28, 2010 Downgraded to Caa3 (sf)

Cl. F, Affirmed at Caa3 (sf); previously on Apr 28, 2010 Confirmed at Caa3 (sf)

Cl. G, Affirmed at Caa3 (sf); previously on Apr 28, 2010 Confirmed at Caa3 (sf)

Cl. H, Affirmed at Caa3 (sf); previously on Apr 28, 2010 Confirmed at Caa3 (sf)

Cl. J, Affirmed at Caa3 (sf); previously on Apr 28, 2010 Confirmed at Caa3 (sf)

Cl. K, Affirmed at Caa3 (sf); previously on Apr 28, 2010 Confirmed at Caa3 (sf)

RATINGS RATIONALE

N-Star Real Estate CDO IX, Ltd. is a revolving CRE CDO transaction with the reinvestment period ending in June 2012. The collateral pool contains 60.3% commercial mortgage backed securities (CMBS) of which approximately 90% was issued between 2005 and 2008. The remaining collateral includes CRE CDO (28.0%), CMBS rake bonds (4.1%), real estate investment trust (REIT) debt (1.3%), and commercial real estate loans (6.3%).

As of the March 1, 2011 trustee report, the outstanding note balance was $800 million, the same as at securitization. However, the current collateral par balance has increased to over $1.0 billion dollars from $942 million at last review. The increase in overcollateralization is the result of discount collateral purchases.

The pool contains 41 assets totaling $252 million (27.7% of the collateral pool balance) that are listed as Defaulted Securities as of the March 1, 2011 trustee report. Seventeen of these assets (49.4% of the defaulted balance) are CRE CDO, 19 assets are CMBS (40.1%), two assets are commercail real estate loans (7.4%), and five assets are CMBS rake bonds (3.1%). While there have been no realized losses to 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: 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 assets. The bottom-dollar WARF is a measure of the default probability within a collateral pool. For non-CUSIP collateral, Moody's is eliminating the additional default probability stress applied to corporate debt in CDOROM® v2.8 as we expect the underlying non-CUSIP collateral to experience low default rates and higher recovery due to the nature of the secured real estate collateral. Moody's modeled a bottom-dollar WARF of 3,822, which is the WARF excluding defaulted collateral, compared to 3,087 at last review. The distribution of current ratings and credit estimates is as follows: Aaa-Aa3 (3.8% compared to 8.8% at last review), A1-A3 (7.7% compared to 10.1% at last review), Baa1-Baa3 (19.1% compared to 15.8% at last review), Ba1-Ba3 (19.8% compared to 26.4% at last review), B1-B3 (12.7% compared to 13.0% at last review), and Caa1-C (37.0% compared to 25.9% at last review).

WAL acts to adjust the probability of default of the assets in the pool for time. Moody's modeled to the covenant WAL of 6.0 years compared to 7.0 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 18.6% compared to a WARR of 20.0% 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). For non-CUSIP collateral, Moody's is reducing the maximum over concentration stress applied to correlation factors due to the diversity of tenants, property types, and geographic locations inherent in pooled transactions. Moody's modeled a MAC of 10.2% compared to 11.2% 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 18.6% to 8.6% or up to 28.6% would result in average rating movement on the rated tranches of 0 to 2 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 Revolving Facilities in CDOs Backed by Commercial Real Estate Interests" published in July 2004.

Further information on Moody's analysis of this transaction is available on www.moodys.com.

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's information, confidential and proprietary Moody's Analytics' information.

Moody's Investor 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
Scott Epperson
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 Three and Affirms Nine CRE CDO Classes of N-Star Real Estate CDO IX, Ltd.
No Related Data.
© 2020 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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