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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York, June 09, 2017 -- Moody's Investors Service has downgraded the ratings of seven Interest-Only (IO) securities and withdrawn the ratings of three IO securities referencing bonds or collateral pools backed by US small business loans or US franchise loans, from a total of eight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 SIO, Withdrawn (sf); previously on May 31, 2012 Downgraded to Caa2 (sf)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 SIO, Withdrawn (sf); previously on May 31, 2012 Downgraded to Caa2 (sf)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 SIO, Withdrawn (sf); previously on May 31, 2012 Downgraded to Caa1 (sf)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.
© 2022 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE APPLICABLE MOODY’S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY’S CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS (“ASSESSMENTS”), AND OTHER OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY’S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. AND/OR ITS AFFILIATES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT RATINGS, ASSESSMENTS AND OTHER OPINIONS AND PUBLISHES ITS PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.

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Moody’s Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody’s Corporation (“MCO”), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody’s Investors Service, Inc. have, prior to assignment of any credit rating, agreed to pay to Moody’s Investors Service, Inc. for credit ratings opinions and services rendered by it fees ranging from $1,000 to approximately $5,000,000. MCO and Moody’s Investors Service also maintain policies and procedures to address the independence of Moody’s Investors Service credit ratings and credit rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold credit ratings from Moody’s Investors Service and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading “Investor Relations — Corporate Governance — Director and Shareholder Affiliation Policy.”

Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY’S affiliate, Moody’s Investors Service Pty Limited ABN 61 003 399 657AFSL 336969 and/or Moody’s Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). This document is intended to be provided only to “wholesale clients” within the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, you represent to MOODY’S that you are, or are accessing the document as a representative of, a “wholesale client” and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to “retail clients” within the meaning of section 761G of the Corporations Act 2001. MOODY’S credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors.

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MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any credit rating, agreed to pay to MJKK or MSFJ (as applicable) for credit ratings opinions and services rendered by it fees ranging from JPY100,000 to approximately JPY550,000,000.

MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.

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