Approximately $21.6 Million of Structured Securities Affected
New York, December 15, 2010 -- Moody's has upgraded five classes of Notes issued by STRIPs III Ltd./STRIPs
III Corp. Master Trust, Series 2003-1 due to the better
than expected performance of the underlying collateral and faster than
expected paydown of the classes of notes. The rating action is
the result of Moody's on-going surveillance of commercial
real estate collateralized debt obligation (CRE CDO) transactions.
Cl. J, Upgraded to Aaa (sf); previously on Oct 18,
2007 Upgraded to Aa1 (sf)
Cl. K, Upgraded to Aaa (sf); previously on Apr 3,
2006 Upgraded to A1 (sf)
Cl. L, Upgraded to Aaa (sf); previously on Apr 3,
2006 Upgraded to A3 (sf)
Cl. M, Upgraded to Aaa (sf); previously on Apr 3,
2006 Upgraded to Baa2 (sf)
Cl. N, Upgraded to Aaa (sf); previously on Apr 3,
2006 Upgraded to Baa3 (sf)
STRIPs III Ltd./STRIPs III Corp. Master Trust, Series
2003-1 is a static resecuritization transaction backed by a portfolio
of nine interest only (IO) certificates from 9 CMBS transactions and twenty-one
grantor trust certificates secured by a portion of the interest payments
from 21 CMBS transactions issued between 1999 to 2002. As of the
November 22, 2010 Trustee report, the aggregate Note balance
of the transaction has decreased to $21.6 million from $465.2
million at issuance, with the paydown from excess interest directed
to the rated notes in a senior-sequential manner after payments
are made to the stated coupons on each outstanding rated tranche.
When assigning and monitoring the ratings on the CRE CDO Notes,
Moody's applied ratings-specific cash flow scenarios assuming different
loss timing, recovery and prepayment assumptions on the underlying
pool of mortgages that are the collateral for the underlying CMBS transactions
through Structured Finance Workstation® (SFW), the cash flow
model developed by Moody's Wall Street Analytics. The analysis
incorporates performance variances across the different pools and the
structural features of the transaction including priorities of payment
distribution among the different tranches, tranche average life,
current tranche balance for principal tranches and future cash flows for
both IO and principal and interest (P&I) tranches under expected and
stressed scenarios. In each scenario, cash flows and losses
from the underlying collateral were analyzed applying different stresses
at each rating level. The resulting ratings specific stressed cash
flows were then input into the structure of the resecuritization to determine
expected losses for each class. The expected losses were then compared
to the idealized expected loss for each class to gauge the appropriateness
of the existing rating. The stressed assumptions considered,
among other factors, the underlying transaction's collateral attributes,
past and current performance, and Moody's current negative performance
outlook for commercial real estate.
Within the resecuritization pool, the identified weighted average
life is 0.7 years assuming a 0%/0% constant default
and prepayment rate (CDR/CPR). Additionally, expected recovery
rates at the mortgage loan level ranged between 40% to 60%
and a weighted average of 40%.
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. Cash flows to the underlying IO Certificates are
particularly sensitive to changes in recovery rate assumptions for the
underlying CMBS transactions. 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 stressed macroeconomic environment and continuing weakness
in the commercial real estate and lending markets. Moody's currently
views the commercial real estate market as stressed with further performance
declines expected in a majority of property sectors. The availability
of debt capital is improving with terms returning towards market norms.
Job growth and housing price stability will be necessary precursors to
commercial real estate recovery. Overall, Moody's central
global scenario remains "hook-shaped" for 2010 and 2011; we
expect overall a sluggish recovery in most of the world's largest economies,
returning to trend growth rate with elevated fiscal deficits and persistent
The principal methodology used in these ratings was "U.S.
CMBS: Moody's Approach to Rating Static CDOs Backed by Commercial
Real Estate Securities" published in June 2004.
Further information on Moody's analysis of this transaction is available
on www.moodys.com. In addition, Moody's publishes
a weekly summary of structured finance credit, ratings and methodologies,
available to all registered users of our website, at www.moodys.com/SFQuickCheck.
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.
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 information, and confidential and proprietary Moody's
Moody's Investors Service 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.
Zhonghui (Grace) Wu
Asst Vice President - Analyst
Structured Finance Group
Moody's Investors Service
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's Upgrades Five CRE CDO Classes of STRIPs III Ltd./STRIPs III Corp. Master Trust, Series 2003-1
250 Greenwich Street
New York, NY 10007