Approximately $256 Million of Structured Securities Affected
New York, March 09, 2011 -- Moody's has downgraded two classes of Notes issued by Magnolia Finance
II Series 2005-6 due to the deterioration in the credit quality
of the underlying portfolio of reference obligations as evidenced by an
increase in the weighted average rating factor (WARF) and a decrease in
the 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 A2 (sf); previously on Mar 26,
2010 Downgraded to Aa2 (sf)
Cl. B, Downgraded to Ba1 (sf); previously on Mar 26,
2010 Downgraded to A2 (sf)
Magnolia Finance II Series 2005-6 is a synthetic CRE CDO transaction
backed by a portfolio of commercial mortgage backed securities (CMBS)
reference obligations (100.0% of the pool balance).
All of the CMBS reference obligations were securitized between 2003 and
2005. The aggregate par amount of the reference obligations has
decreased to $3.36 billion from $3.41 billion
at securitization due to amortization of several reference obligations.
Additionally, the aggregate issued note balance of the transaction
has decreased to $256 million from $307 million at securitization.
The decrease in the note balance was due to the Partial Repurchase of
the Class A Notes.
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
WARF is a primary measure of the credit quality of a CRE CDO pool.
All of the reference obligations are Moody's rated. The bottom-dollar
WARF is a measure of the default probability within a collateral pool.
Moody's modeled a bottom-dollar WARF of 56 compared to 6
at last review. The distribution of current ratings and credit
estimates of the reference obligations is as follows: Aaa-Aa3
(89.6% compared to 96.9% at last review),
A1-A3 (6.9% compared to 3.1% at last
review), Baa1-Baa3 (2.8% compared to 0.0%
at last review), and Caa1-C (0.7% compared
to 0.0% 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 3.5 years
compared to 4.5 years at last review.
WARR is the par-weighted average of the mean recovery values for
the reference obligations in the pool. Moody's modeled a
variable WARR with a mean of 67.5% compared to 69.6%
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 12.5% compared to 61.0% at
last review. The lower MAC is due to the wider diversity of ratings
and credit estimates.
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. In general, the rated Notes are particularly
sensitive to rating changes within the collateral pool. Holding
all other key parameters static, stressing Moody's rated reference
obligations' that are currently on watch for downgrade (ten assets;
9.4% of notional amount) by two notches downward for Aaa
and three notches downward for non-Aaa, the resulting impact
negatively affects the model results between 0.03 to 0.18
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
"U.S. CMBS: Moody's Approach to Rating Synthetic CMBS
Resecuritizations" published in December 2005.
Further information on Moody's analysis of this transaction is available
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's information, and confidential and proprietary Moody's
Moody's 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 Two CRE CDO Class of Magnolia Finance II Series 2005-6
250 Greenwich Street
New York, NY 10007