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23 Feb 2011
Approximately $33.7 Million of Structured Securities Affected
New York, February 23, 2011 -- Moody's has downgraded two classes of Notes issued by Sonoma Valley 2007-4
Synthetic CDO of CMBS Variable Rate Notes Due 2051 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).
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:
Series 114/2007, Downgraded to B3 (sf); previously on Jul 16,
2010 Downgraded to B1 (sf)
Series 115/2007, Downgraded to B2 (sf); previously on Jul 16,
2010 Downgraded to Ba3 (sf)
RATINGS RATIONALE
Sonoma Valley 2007-4 Synthetic CDO of CMBS Variable Rate Notes
Due 2051 is a static synthetic CRE CDO transaction backed by a portfolio
of credit linked notes referencing $2.3 billion notional
amount of commercial mortgage backed securities (CMBS). All of
the CMBS reference obligations were securitized in 2006 (45%) and
2007 (55%). And all reference obligations are currently
rated by Moody's.
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.
The bottom-dollar WARF is a measure of the default probability
within a collateral pool. Moody's modeled a bottom-dollar
WARF of 81 compared to 32 at last review. The distribution of current
ratings is as follows: Aaa (38.3% compared to 65.2%
at last review), Aa1-Aa3 (33.9% compared to
20.0% at last review), A1-A3 (7.8%
compared to 13.1% at last review), and Baa1-Baa3
(20.0% compared to 1.7% 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 5.7 years
compared to 6.3 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 63.9%, compared to 69.1%
at last review.
MAC is a single factor that describes the pair-wise asset correlation
to the default distribution among the instruments within the reference
obligations pool (i.e. the measure of diversity).
Moody's modeled a MAC of 50.0%, compared to
53.3% at last review.
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 all underlying CMBS assets
currently under review for possible downgrade: three Aaa rated assets
were downgraded by two notches and one Aa1-rated assets was downgraded
by three notches; the model results did not change.
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 "U.S.
CMBS: Moody's Approach to Rating Synthetic CMBS Resecuritizations"
published in December 2005, and "Moody's Approach to Rating
SF CDOs" published in November 2010.
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 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
Biao He
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 Two CRE CDO Classes of Sonoma Valley 2007-4
No Related Data.
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