New York, March 17, 2017 -- Moody's Investors Service has affirmed the ratings on the following notes
issued by Crest 2003-2, Ltd.:
Cl. D-1, Affirmed A1 (sf); previously on Apr
5, 2016 Upgraded to A1 (sf)
Cl. D-2, Affirmed A1 (sf); previously on Apr
5, 2016 Upgraded to A1 (sf)
Cl. E-1, Affirmed Caa3 (sf); previously on Apr
5, 2016 Affirmed Caa3 (sf)
Cl. E-2, Affirmed Caa3 (sf); previously on Apr
5, 2016 Affirmed Caa3 (sf)
RATINGS RATIONALE
Moody's has affirmed the ratings on the transaction because the
key transaction metrics are commensurate with existing ratings.
The affirmation is the result of Moody's on-going surveillance
of commercial real estate collateralized debt obligation (CRE CDO and
Re-REMIC).
Crest 2003-2, Ltd. is a static cash transaction backed
by a portfolio of: i) commercial mortgage backed securities (CMBS)
(78.1% of the collateral pool balance); ii) CRE CDOs
(6.3%); and iii) credit tenant leases (CTL) (15.6%).
As of the December 23, 2016 note valuation report, the aggregate
note balance of the transaction, including preferred shares,
is $82.9 million, compared to $325.0
million at issuance.
The pool contains seven assets totaling $15.2 million (45.5%
of the collateral pool balance) that are listed as defaulted securities
as of the trustee's February 28, 2017 report. While
there have been limited realized losses on the underlying collateral to
date, Moody's does expect moderate-to-high losses
to occur on the defaulted securities.
Moody's has identified the following as key indicators of the expected
loss in CRE CDO transactions: the weighted average rating factor
(WARF), the weighted average life (WAL), the weighted average
recovery rate (WARR), and Moody's asset correlation (MAC).
Moody's typically models these 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.
Moody's has updated its assessments for the collateral it does not
rate. The rating agency modeled a bottom-dollar WARF of
3187, compared to 3459 at last review. The current ratings
on the Moody's-rated collateral and the assessments of the non-Moody's
rated collateral follow: Aaa-Aa3 (35.0%,
compared to 23.3% at last review); A1-A3 (16.0%,
compared to 9.0% at last review); Baa1-Baa3
(0.0%, compared to 6.5% at last review);
Ba1-Ba3 (12.7%, compared to 15.4%
at last review); B1-B3 (9.8%, compared
to 17.6% at last review); Caa1-Ca/C (26.%,
compared to 28.2% at last review).
Moody's modeled a WAL of 2.4 years, compared to 3.0
years at last review. The WAL is based on assumptions about extensions
on the look-through underlying CMBS loan collateral.
Moody's modeled a fixed WARR of 11.6%, compared
to 9.6% at last review.
Moody's modeled a MAC of 3.5%, compared to 4.7%
at last review.
Methodology Underlying the Rating Action:
The principal methodology used in these ratings was "Moody's Approach
to Rating SF CDOs" published in October 2016. Please see the Rating
Methodologies page on www.moodys.com for a copy of this
methodology.
Factors that would lead to an upgrade or downgrade of the ratings:
The performance of the notes is subject to uncertainty, because
it is sensitive to the performance of the underlying portfolio,
which in turn depends on economic and credit conditions that are subject
to change. The servicing decisions of the master and special servicer
and surveillance by the operating advisor with respect to the collateral
interests and oversight of the transaction will also affect the performance
of the rated notes.
Moody's Parameter Sensitivities: Changes to any one or more
of the key parameters could have rating implications for some of the rated
notes, although a change in one key parameter assumption could be
offset by a change in one or more of the other key parameter assumptions.
The rated notes are particularly sensitive to changes in the recovery
rates of the underlying collateral and credit assessments. Holding
all other parameters constant, reducing the recovery rates of the
collateral pool by -10.0% would result in an average
modeled rating movement on the rated notes of zero notches downward (e.g.,
one notch down implies a ratings movement of Baa3 to Ba1). Increasing
the recovery rate of the collateral pool by +10.0%
would result in an average modeled rating movement on the rated notes
of zero to one notch upward (e.g., one notch up implies
a ratings movement of Baa3 to Baa2).
The primary sources of uncertainty in Moody's assumptions are the
extent of growth in the current macroeconomic environment given the weak
recovery and certain commercial real estate property markets. Commercial
real estate property values continue to improve modestly, along
with a rise in investment activity and stabilization in core property
type performance. Limited new construction and moderate job growth
have aided this improvement. However, sustained growth will
not be possible until investment increases steadily for a significant
period, non-performing properties are cleared from the pipeline
and fears of a euro area recession abate.
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 relies on a Monte Carlo simulation that generates a large
number of collateral loss or cash flow scenarios, which on average
meet key metrics Moody's determines based on its assessment of the
collateral characteristics. Moody's then evaluates each simulated
scenario using model that replicates the relevant structural features
and payment allocation rules of the transaction, to derive losses
or payments for each rated instrument. The average loss a rated
instrument incurs in all of the simulated collateral loss or cash flow
scenarios, which Moody's weights based on its assumptions
about the likelihood of events in such scenarios actually occurring,
results in the expected loss of the 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.
Moody's weights the impact on the rated instruments based on its
assumptions of the likelihood of the events in such scenarios occurring.
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.
Romina Padhi
Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Deryk Meherik
Senior Vice President/Manager
Structured Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
