New York, February 22, 2012 -- Moody's Investors Service took rating action on 44 interest-only
(IO) securities from 39 asset-backed securities (ABS) transactions
due to a new global methodology for rating structured finance IO securities.
Moody's rates a total of 77 ABS IO securities. The actions
impacted 15 out of 15 Moody's-rated franchise ABS IOs,
12 of which were downgraded to Ba3 (sf) and placed on review for possible
further downgrade, one of which was placed on review for possible
downgrade, and two of which were downgraded with no further review.
The actions also impacted 28 out of 44 Moody's-rated small
business ABS IOs, which were downgraded to Ba3 (sf) and placed on
review for possible further downgrade, and one out of 17 Moody's-rated
student loan ABS IOs, which was upgraded by one notch. Moody's
also rates one rental car ABS IO, which is not impacted by the new
methodology.
These actions reflect the following implementation of the new methodology.
For ABS IO securities referencing a single pool, and for ABS IO
securities referencing multiple bonds that were not all investment grade
at closing, Moody's has downgraded the rating of the IO securities
to "Ba3 (sf)". These securities will remain on review
for further possible downgrade while Moody's recalibrates expected
losses. For IO securities referencing multiple bonds that were
all rated investment grade at closing, Moody's has taken a
direct downgrade action in accordance with the published methodology.
RATINGS RATIONALE
The methodology addresses expected differences in cash flows to the IO
holder that arise from defaults and losses and maps them to a credit rating.
The methodology is the result of extensive analysis into the meaning of
the IO rating and how to better align IO ratings with Moody's expected
loss (EL) ratings framework. The ratings framework approach is
based on the results of our cash flow analysis. To arrive at the
ratings framework, we tested various types of IOs using a Monte
Carlo approach. Under multiple scenarios we measured the reduction
in cash flow on an IO security relative to base case scenarios that were
run off a matrix of default and recovery assumptions. The base
case scenarios assumed no credit events on the reference tranches.
Simulations stressed defaults and recoveries, but did not stress
prepayments nor extensions. Prepayments are considered non credit
events. Changes to the ratings or credit estimates of the referenced
bonds or assets will directly impact the ratings of the IO.
IOs reference one or more bonds or assets. As such, the key
rating parameters that influence the ratings on the referenced bonds will
also influence the ratings on the IO. Key rating parameters for
US ABS include lifetime net losses, and are captured in the ratings
and credit estimates of the referenced bonds or assets.
Changes in the key parameters may have rating implications on certain
classes of rated notes that are referenced by the IO. IO ratings
are sensitive to any rating changes within the reference pool and/or changes
in expected loss.
The performance expectations within a given variable indicate Moody's
forward-looking view of the likely range of performance over the
medium to long 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 referenced securities were issued or assets were securitized.
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 limited to, the performance metrics.
Primary sources of assumption uncertainty vary by ABS asset class.
For small business ABS, primary sources of assumption uncertainty
are the general economic environment, commercial property values,
and the ability of small businesses to recover from the recession.
For franchise ABS, primary sources of assumption uncertainty are
the current macroeconomic environment and its impact on the various businesses
represented in particular transactions, including restaurant and
fast food, gas stations, convenience stores, and other
small franchise businesses. For student loan ABS, primary
sources of assumption uncertainty are the weak economic environment and
the high unemployment rate, which adversely impact the income-generating
ability of the borrowers.
The principal methodology used in these ratings was "Moody's Approach
to Rating Structured Finance Interest-Only Securities" published
on February 2012. Please see the Credit Policy page on www.moodys.com
for a copy of this methodology.
In addition, other methodologies used in rating Student Loan ABS
Repackaging Trust, Series 2007-2 was "Moody's Approach to
Rating U.S. Private Student Loan-Backed Securities"
published in January 2010. Please see the Credit Policy page on
www.moodys.com for a copy of this methodology.
Please click on this http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF277320
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and identifies each affected issuer.
REGULATORY DISCLOSURES
Although these credit ratings have been issued in a non-EU country
which has not been recognized as endorsable at this date, the credit
rating is deemed "EU qualified by extension" and may still
be used by financial institutions for regulatory purposes until 30 April
2012. Further information on the EU endorsement status and on the
Moody's office that has issued a particular Credit Rating is available
on www.moodys.com.
For ratings issued on a program, series or category/class of debt,
this announcement provides relevant regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides relevant regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides relevant regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
Information sources used to prepare the ratings are the following:
parties involved in the ratings, and confidential and proprietary
Moody's Investors Service information.
Moody's did not receive or take into account a third-party
assessment on the due diligence performed regarding the underlying assets
or financial instruments related to the monitoring of these transactions
in the past six months.
Moody's considers the quality of information available on the rated
entities, obligations or credits satisfactory for the purposes of
issuing these ratings.
Moody's adopts all necessary measures so that the information it
uses in assigning the ratings 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.
The below contact information is provided for information purposes only.
Please see the issuer page on www.moodys.com for Moody's
regulatory disclosure of the name of the lead analyst and the office that
has issued the credit rating.
Please see the ratings disclosure page on www.moodys.com
for general disclosure on potential conflicts of interests.
Please see the ratings disclosure page on www.moodys.com
for information on (A) MCO's major shareholders (above 5%) and
for (B) further information regarding certain affiliations that may exist
between directors of MCO and rated entities as well as (C) the names of
entities that hold ratings from MIS that have also publicly reported to
the SEC an ownership interest in MCO of more than 5%. A
member of the board of directors of this rated entity may also be a member
of the board of directors of a shareholder of Moody's Corporation;
however, Moody's has not independently verified this matter.
Please see Moody's Rating Symbols and Definitions on the Rating Process
page on www.moodys.com for further information on the meaning
of each rating category and the definition of default and recovery.
Please see ratings tab on the issuer/entity page on www.moodys.com
for the last rating action and the rating history.
The date on which some ratings were first released goes back to a time
before Moody's ratings were fully digitized and accurate data may not
be available. Consequently, Moody's 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 www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Vikram Josyula
Associate Analyst
Structured Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Amelia (Amy) Tobey
VP - Senior Credit Officer
Structured Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's Takes Action on 44 IO Securities from 39 ABS Transactions due to New Methodology for Rating Structured Finance IO Securities
