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Rating Action:

Moody's Upgrades One and Affirms Five CRE CDO Classes of N-Star Real Estate CDO I, Ltd.

22 Sep 2010

Approximately $197.3 Million of Structured Securities Affected

New York, September 22, 2010 -- Moody's has upgraded one and affirmed five classes of Notes issued by N-Star Real Estate CDO I Ltd. due to decreased loss expectations as a result of the rate of paydowns of the Class A-1 Notes. The rating action is the result of Moody's on-going surveillance of commercial real estate collateralized debt obligation (CRE CDO) transactions.

Cl. A-1 Floating Rate Senior Notes due 2038, Upgraded to Aaa (sf); previously on Apr 2, 2009 Confirmed at Aa2 (sf)

Cl. A-2A Floating Rate Senior Notes due 2038, Affirmed at Aa3 (sf); previously on Apr 2, 2009 Confirmed at Aa3 (sf)

Cl. A-2B Fixed Rate Senior Notes due 2038, Affirmed at Aa3 (sf); previously on Apr 2, 2009 Confirmed at Aa3 (sf)

Cl. B-2 Floating Rate Senior Notes due 2038, Affirmed at A2 (sf); previously on Apr 2, 2009 Confirmed at A2 (sf)

Cl. C-1A Floating Rate Subordinate Notes due 2038, Affirmed at Baa3 (sf); previously on Apr 2, 2009 Confirmed at Baa3 (sf)

Cl. C-1B Fixed Rate Subordinate Notes due 2038, Affirmed at Baa3 (sf); previously on Apr 2, 2009 Confirmed at Baa3 (sf)

RATINGS RATIONALE

N-Star Real Estate CDO I Ltd. is a CRE CDO transaction backed by a portfolio of commercial mortgage-backed securities (CMBS) (67.7% of the pool balance), real estate investment trust bonds (REITs) (25.5%) and collateralized debt obligations (CDOs) (6.8%). As of the August 24, 2010 Trustee report, the aggregate Note balance of the transaction has decreased to $278.0 million from $402.0 million at issuance, with the paydown directed to the Class A-1 Notes.

There is one asset with a par balance of $5.0 million (1.9% of the current pool balance) that are considered Defaulted Securities as of the August 24, 2010 Trustee report. This asset is CMBS. While there have been no realized losses to date, Moody's does expect some losses to occur from some lower rated CMBS in the portfolio.

Moody's has identified the following parameters as key indicators of the expected loss within CRE CDO transactions: WARF, weighted average life (WAL), weighted average recovery rate (WARR), and Moody's asset correlation (MAC). These parameters are typically modeled as actual parameters for static deals and as covenants for managed deals.

WARF is a primary measure of the credit quality of a CRE CDO pool. We have completed updated credit estimates for the non-Moody's rated reference obligations. The bottom-dollar WARF is a measure of the default probability within a collateral pool. Moody's modeled a bottom-dollar WARF of 838 compared to 518 at last review. The distribution of current ratings and credit estimates is as follows: Aaa-Aa3 (11.9% compared to 8.1% at last review), A1-A3 (23.2% compared to 12.7% at last review), Baa1-Baa3 (38.3% compared to 55.4% at last review), Ba1-Ba3 (16.5% compared to 23.8% at last review), B1-B3 (3.7% compared to 0.0% at last review), and Caa1-C (6.4% compared to 0.0% at last review).

WAL acts to adjust the probability of default of the reference obligations in the pool for time. Moody's modeled to a WAL of 2.4 years compared to 3.7 years at last review.

WARR is the par-weighted average of the mean recovery values for the collateral assets in the pool. Moody's modeled a fixed WARR of 25.6% compared to 25.2% at last review.

MAC is a single factor that describes the pair-wise asset correlation to the default distribution among the instruments within the collateral pool (i.e. the measure of diversity). Moody's modeled a MAC of 13.7%. The low MAC is due to higher default probability collateral concentrated within a small number of collateral names.

The principal methodologies used in rating N-Star Real Estate CDO I Ltd. were " U.S. CMBS: Moody's Approach to Rating Static CDOs Backed by Commercial Real Estate Securities" published in June 2004, and "Moody's Approach to Rating SF CDOs" published in August 2009. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found on Moody's website.

Moody's review incorporated CDOROM® v2.6, one of Moody's CDO rating models, which was released on May 27, 2010.

The cash flow model, CDOEdge® v3.2, was used to analyze the cash flow waterfall and its effect on the capital structure of the deal.

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. Rated notes are particularly sensitive to changes in recovery rate assumptions. Holding all other key parameters static, changing the recovery rate assumption down from 25.6% to 15.6% or up to 35.6% would result in average rating movement on the rated tranches of 1 to 2 notches downward and 1 to 3 notches upward, respectively.

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 unemployment levels.

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 6 months.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties not involved in the ratings, public information, confidential and proprietary Moody's Investors Service information, confidential and proprietary Moody's Analytics' information.

Moody's 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.

New York
Edward Siegel
Asst Vice President - Analyst
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Deryk Meherik
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Investors Service
250 Greenwich Street
New York, NY 10007
USA

Moody's Upgrades One and Affirms Five CRE CDO Classes of N-Star Real Estate CDO I, Ltd.
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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