Approximately $124.3 Million of Structured Securities Affected
New York, March 23, 2011 -- Moody's has upgraded one and affirmed two classes of Notes issued by Independence
I CDO, Ltd. due to the rapid pace of amortization of the
senior class of Notes as a result of the senior overcollateralization
tests combined with the maturity of an interest rate swap on the transaction
providing for an increase in interest proceeds each payment period which
are applied to amortize the Class A Notes . The rating action is
the result of Moody's on-going surveillance of commercial
real estate collateralized debt obligation (CRE CDO) transactions.
Moody's rating action is as follows:
Class A First Priority Senior Secured Floating Rate Notes, Upgraded
to Ba1 (sf); previously on Apr 22, 2009 Downgraded to B1 (sf)
Class B Second Priority Senior Secured Floating Rate Notes, Affirmed
at Ca (sf); previously on Apr 22, 2009 Downgraded to Ca (sf)
Class C Mezzanine Secured Floating Rate Notes, Affirmed at C (sf);
previously on Feb 18, 2005 Downgraded to C (sf)
Independence CDO I, Ltd. Is a static CDO a potfolio of asset
back securities (ABS) (52.7% of the pool balance),
commercial mortgage backed securities (CMBS) (33.7%),
and collateralized debt obligations (CDO) (13.6%).
As of the February 28, 2011 Trustee report, the aggregate
Note balance of the transaction has decreased to $124.3
million from $288.5 million at issuance, with paydown
directed to the Class A Notes. The paydown results from the failure
of the senior overcollateralization tests.
There are seven assets with par balance of $15.5 million
(13.3% of the current pool balance) that are considered
Defaulted Securities as of the February 28, 2011 Trustee report.
All of these assets are ABS securities.
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
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 assets. The bottom-dollar WARF is a measure of the
default probability within a collateral pool. Moody's modeled
a bottom-dollar WARF, excluding defaulted securities,
of 3,342. The distribution of current ratings and credit
estimates is as follows: Aaa-Aa3 (16.2%),
A1-A3 (9.8%), Baa1-Baa3 (16.4%),
Ba1-Ba3 (12.7%), B1-B3 (12.8%),
and Caa1-C (32.1%).
WAL acts to adjust the probability of default of the assets in the pool
for time. Moody's modeled to a WAL of 5.2 years.
WARR is the par-weighted average of the mean recovery values for
the collateral assets in the pool. Moody's modeled a variable
WARR with a mean of 27.5%.
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 5.5%.
Moody's review incorporated CDOROM® v2.8, one of Moody's
CDO rating models, which was released on January 24, 2011.
The cash flow model, CDOEdge® v18.104.22.168,
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 27.5%
to 17.5% or up to 37.5% does not result in
any ratings movement on the rated tranches.
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 sluggish macroeconomic environment
and varying performance in the commercial real estate property markets.
However, Moody's expects to see increasing or stabilizing property
values, higher transaction volumes, a slowing in the pace
of loan delinquencies and greater liquidity for commercial real estate
in 2011 The hotel and multifamily sectors are continuing to show signs
of recovery, while recovery in the office and retail sectors will
be tied to recovery of the broader economy. The availability of
debt capital continues to improve with terms returning toward market norms.
Moody's central global macroeconomic scenario reflects an overall sluggish
recovery through 2012, amidst ongoing individual, corporate
and governmental deleveraging, persistent unemployment, and
government budget considerations.
The principal methodologies used in these ratings were "Moody's
Approach to Rating SF CDOs" published in November 2010, and
"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
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's information, confidential and proprietary Moody's
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.
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 One and Affirms Two CRE CDO Classes of Independence I CDO, Ltd.
250 Greenwich Street
New York, NY 10007