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Rating Action:

Moody's Takes Actions on IO Securities from 8 US ABS Transactions

09 Jun 2017

New York, June 09, 2017 -- Moody's Investors Service has downgraded the ratings of seven Interest-Only (IO) securities and withdrawn the ratings of three IO securities referencing bonds or collateral pools backed by US small business loans or US franchise loans, from a total of eight transactions.

The rating actions today are the result of updates to the methodology that Moody's uses to rate IO securities.

Please see Moody's announcement on the methodology update: https://www.moodys.com/research/Moodys-updates-its-approach-for-rating-structured-finance-interest-only--PR_367970

Complete rating actions are as follow:

Issuer: BayView Commercial Asset Trust 2004-1

Cl. IO, Downgraded to Caa1 (sf); previously on May 31, 2012 Downgraded to B3 (sf)

Issuer: Bayview Commercial Asset Trust 2008-2

Cl. IO, Downgraded to Caa3 (sf); previously on May 31, 2012 Downgraded to Caa2 (sf)

Cl. SIO, Withdrawn (sf); previously on May 31, 2012 Downgraded to Caa2 (sf)

Issuer: Bayview Commercial Asset Trust 2008-3

Cl. IO, Downgraded to Caa3 (sf); previously on May 31, 2012 Downgraded to Caa2 (sf)

Cl. SIO, Withdrawn (sf); previously on May 31, 2012 Downgraded to Caa2 (sf)

Issuer: Bayview Commercial Asset Trust 2008-4

Cl. SIO, Withdrawn (sf); previously on May 31, 2012 Downgraded to Caa1 (sf)

Issuer: EMAC Owner Trust 2000-1

Class IO Certificates, Downgraded to Ca (sf); previously on Mar 30, 2012 Downgraded to Caa3 (sf)

Issuer: FFCA Secured Franchise Lending Corporation

Class IO, Downgraded to Caa3 (sf); previously on Feb 22, 2012 Downgraded to Caa1 (sf)

Issuer: Lehman Brothers Small Balance Commercial Mortgage Pass Through Certificates, Series 2005-2

Cl. A-IO, Downgraded to A1 (sf); previously on Oct 25, 2016 Upgraded to Aaa (sf)

Issuer: MSDWMC Owner Trust 2000-F1

Class X, Downgraded to Caa1 (sf); previously on Mar 30, 2012 Downgraded to B3 (sf)

RATINGS RATIONALE

The updated methodology modifies Moody's approach to rating IO securities referencing multiple bonds and single or multiple collateral pools with realized losses. References made to the exclusion of certain IO securities in the previous methodology were removed. In addition, a description was added to explain when an IO bond is viewed as having effectively matured and results in the withdrawal of the rating.

The updated methodology explains that Moody's will limit the rating of an IO security to no more than five notches above the rating of the lowest credit quality reference bond or the rating that would be assigned based on an assessment of the default probability of the reference pool(s), as applicable, and clarifies that the collateral pool's default probability typically will be treated as equivalent to Ca(sf) if a loss is expected on the pool. The methodology also explains how Moody's 10-year Idealised Cumulative Expected Loss Rates table will be used to determine the rating of IOs referencing multiple bonds and IOs backed by single or multiple pools, as well as how the table is used when the loss falls between two rating categories.

This press release is not intended to provide a summary of the methodology. For a full explanation of the methodology, please consult the updated report, now available on www.moodys.com and accessible at: https://www.moodys.com/research/Moodys-updates-its-approach-for-rating-structured-finance-interest-only--PR_367970

The ratings for three Class SIO securities from three Bayview transactions will be withdrawn because these securities currently receive cash flows only from prepayment penalties, if any, and the IO ratings and methodology do not consider cash flows generated by prepayment penalties.

The ratings for five IO securities referencing single pools, from five transactions, are being downgraded according to the methodology, to the lowest of (i) the highest current tranche rating on bonds that are outstanding backed by the reference pool; or (ii) the rating corresponding to the pool's expected loss; or (iii) the rating corresponding to the pool's realized losses to date, subject to the constraint that the IO rating would not be more than five notches above the rating that would be assigned based on an assessment of the referenced pool's default probability. This applies to the IO securities from the Bayview Commercial Asset Trust 2004-1, 2008-2, and 2008-3; EMAC Owner Trust 2000-1; and MSDWMC Owner Trust 2000-F1 transactions.

The ratings for two IO securities referencing multiple bonds will be downgraded to take into account the credit risk associated with the weighted average of the current rating of all referenced bonds based on current balances as of May 2017. In cases where the referenced bonds have taken losses, the par balances will be grossed up for such credit losses. This applies to the IO securities from FFCA Secured Franchise Lending Corporation and Lehman Brothers Small Balance Commercial Mortgage Pass-Through Certificates, Series 2005-2 transactions.

METHODOLOGY

The methodologies used in these ratings were "Moody's Global Approach to Rating SME Balance Sheet Securitizations," published in October 2015, and "Moody's Approach to Rating Structured Finance Interest-Only (IO) Securities" published in June 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.

FACTORS THAT WOULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS:

An IO class may be subject to ratings upgrades if there is an improvement in the credit quality of its referenced classes or collateral pools, subject to the rating limits and provisions of the updated IO methodology.

An IO class may be subject to ratings downgrades if there is a decline in the credit quality of the reference classes or paydowns of higher quality reference classes, or decline in credit quality of referenced collateral pools.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions of the disclosure form.

The analysis includes an assessment of collateral characteristics and performance to determine the expected collateral loss or a range of expected collateral losses or cash flows to the rated instruments. As a second step, Moody's estimates expected collateral losses or cash flows using a quantitative tool that takes into account credit enhancement, loss allocation and other structural features, to derive the expected loss for each rated instrument.

Moody's quantitative analysis entails an evaluation of scenarios that stress factors contributing to sensitivity of ratings and take into account the likelihood of severe collateral losses or impaired cash flows.

For ratings issued on a program, series or category/class of debt, this announcement provides certain 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 certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain 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.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

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.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Alexander Chervenkov
Associate Analyst
Structured Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Amelia (Amy) Tobey
Senior Vice President/Manager
Structured Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
© 2021 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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