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06 Mar 2009
$927.5 Million of Structured Securities Affected
New York, March 06, 2009 -- Moody's Investors Service ("Moody's) downgraded the ratings
of two classes Notes issued by Maclaurin SPC 2007-2 Segregated
Portfolio. The rating actions are as follows:
-Class A1, $835,000,000, Variable
Rate Notes Due 2052, downgraded to A2 from Aaa; previously
on 12/19/2008 Placed Under Review for Possible Downgrade
-Class A2, $92,500,000, Variable
Rate Notes Due 2052, downgraded to Ba1 from Aaa; previously
on 12/19/2008 Placed Under Review for Possible Downgrade
Moody's downgraded Classes A1 and A2 due to deteriorating reference
pool performance and revised modeling parameters, as outlined below.
The pool contains a 100% concentration in CMBS reference obligations
of which approximately 18% was issued between 2004 and 2005.
The overall average current credit quality of the reference obligations
is approximately Baa3/Ba1.
Moody's expects the aggregate default rate on CMBS loans (1.16%
as of January 2009) 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
16% 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 revised three key parameters in Moody's model for rating and
monitoring commercial real estate collateralized debt obligations ("CRE
CDOs") - asset correlation, default probability,
and recovery rate. These revisions are generally consistent with
recent revisions to the key parameter assumptions for rating and monitoring
other collateralized debt obligation transactions backed by structured
finance securities ("SF CDOs").
We have updated our asset correlation assumption for the commercial real
estate sector to be consistent with one of Moody's CDO rating models,
CDOROM v2.5 (released on February 3, 2009), which incorporates
these new parameters. However, for CRE CDOs with non-CUSIP
collateral, Moody's is reducing the maximum over concentration
stress applied to correlation factors by half due to the diversity of
tenants, property types, and geographic locations inherent
in the collateral pools. 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 systemic
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 the underlying collateral.
Moody's has previously stated that CRE CDO deals with collateral concentrations
in 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). For CRE CDOs with CUSIP
collateral, the additional default probability stress sometimes
applied to resecuritization collateral will not be applied to Moody's
review of conduit and fusion commercial mortgage backed securities (CMBS)
collateral from the 2006 to 2008 vintages due to a recent ratings sweep
of these transactions. Based on Moody's current expectations
for commercial real estate performance, we have migrated the ratings
for recent vintage CMBS to levels that we believe will remain relatively
stable for the next 12 to 24 months. As such, Moody's
has eliminated the vintage stress factor and default probability resecuritization
stress from its analysis of deals with recent vintage CMBS collateral.
For deals with pre-2006 CMBS collateral, Moody's is
adopting the default probability resecuritization stress assumptions contained
within CDOROM v2.5 to capture the leveraging effect and potential
ratings volatility of the underlying collateral. For CMBS,
this factor is equivalent to two times the probability of default (PD)
for non-Aaa and six times the PD for Aaa-rated collateral.
For CRE CDOs, this factor is equivalent to four times the probability
of default (PD) for non-Aaa and twelve times the PD for Aaa-rated
collateral. The lower stress for CMBS is due to the historical
stable performance of this asset class.
For CRE CDOs with non-CUSIP collateral, Moody's is
eliminating the additional default probability stress in CDOROM v2.5
that is applied to corporate debt as we anticipate that the underlying
non-CMBS collateral will experience lower default rates and higher
recovery rates. In addition, Moody's is reducing the
maximum over concentration stress applied to correlation factors by half
due to the diversity of tenants, property types, and geographic
locations inherent in the collateral pools. For those deals that
are significantly less diversified, we will add back over concentration
stress as warranted.
In Moody's analysis of synthetic CRE CDOs, it historically
employed a fixed recovery rate by the asset's original rating and
tranche size. Our current analysis uses a simulation based mean
recovery rate based on the asset's current rating and tranche size.
This is consistent with the assumptions underlying CDOROM v2.5.
With this more robust approach, Moody's expects to capture
in our ratings more of the tail risk associated with variability of recovery
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
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service
Moody's Downgrades Two Classes of Maclaurin SPC 2007-2 Segregated Portfolio
Michael M. Gerdes
Senior Vice President
Structured Finance Group
Moody's Investors Service
No Related Data.
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