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Global Credit Research - 13 Aug 2010
Approximately $73.4 Million of Asset-Backed Securities Rated.
New York, August 13, 2010 -- Moody's Investors Service has assigned a definitive rating of Aaa (sf)
to the Class A tax lien collateralized bonds issued by NYCTL 2010-A
Trust. The transaction is collateralized by first priority liens
on residential and commercial properties located in the five boroughs
of New York City arising out of delinquent property taxes, water
and sewer charges and other municipal charges ("tax liens"). The
creation and sale of these assets are governed by legislation (the New
York City Administrative Code) under which The City of New York (Aa2)
has the ability to create and sell tax liens, which liens generally
speaking are prime mortgage liens and judgment liens.
The complete rating action is as follows:
Issuer: NYCTL 2010-A Trust
$73,428,000 of Fixed Rate Class A Tax Lien Collateralized
Bonds maturing on January 10, 2024, and rated Aaa (sf)
The rating of Aaa (sf) is based primarily on (1) the credit quality of
the underlying collateral with low weighted average lien-to-value
ratio of 8.17% with only 28.78% of the pool
carrying lien to values of greater than 10.00%; (Lien
to value is defined as the sum of the tax lien redemptive value plus any
subsequent tax liens and any pari passu tax liens divided by the value
of the property as reflected on the records of the Department of Finance
of the City of New York.) (2) the historical performance of New
York City tax lien collateral securitized in the past with stable redemption
patterns and low frequency of charge-offs; (3) the level of
credit support provided by overcollateralization totaling 28% (as
a percentage of the pool of securitized liens) plus excess spread;
(4) the ability of New York City as seller of the collateral to honor
its representations and warranties including the obligation to repurchase
defective liens; (5) the full turbo structural feature permitting
no cash outflow to the residual holder until the rated bonds are fully
paid off; (6) the level of liquidity support provided by the Interest
Reserve Fund and the Working Capital Reserve Fund, as supplemented
by limited advancing by the Indenture Trustee; (7) the expertise
and experience of Plymouth Park Tax Services, LLC (dba "Xspand,"
a wholly-owned subsidiary of JPMorgan Chase) and MTAG Services,
LLC, as servicers, to foreclose, manage and liquidate
the underlying real estate properties including distressed and bankrupt
properties; (8) the responsibility of the Indenture Trustee to act
as the successor servicer; and (9) the integrity of the transaction's
legal structure which reduces the probability of a bankruptcy proceeding
by or against the issuing entity and thus provides comfort that the underlying
collateral will be readily available to support debt repayment.
The tax liens arise out of delinquent property taxes, water and
sewer charges and other municipal charges of The City of New York,
and these liens generally prime are mortgage and judgment liens.
The collateral pool backing this transaction is similar to, but
slightly better than, the most recently closed transaction (i.e.
NYCTL 2009-A Trust). The weighted average lien-to-value
for this asset pool is 8.17% with only 28.78%
of the pool having lien to values of greater than 10.00%
and 0.54% of the pool having lien-to-values
of greater than 50.00%. This compares favorably to
the last transaction which had a weighted average lien-to-value
of 9.83% and 31.19% of the pool with lien-to-values
of greater than 10.00%, and 2.34% of
the pool with lien-to-values greater than 50.00%.
The geographic distribution of the assets in this deal also compares favorably
relative to the last transaction. There are more tax liens relating
to real estate in Manhattan (approximately 19.87% by dollar
balance vs. 14.98% for 2009-A) and less tax
liens relating to real estate in Bronx (approximately 13.86%
vs. 18.86% for 2009-A). The distribution
of this asset pool along property type is also slightly stronger than
in the most recent transaction, primarily as a result of less vacant
land properties (approximately 6.60% vs. 10.12%
for 2009-A), which tends to perform worse than other types
properties based on historical data. However, the pool has
slightly higher concentration in tax liens secured by commercial properties
may have somewhat greater risk as a result of longer potential liquidation
timelines, greater potential for environmental risk exposure and
higher likelihood of property owners seeking bankruptcy protection,
which can further lengthen asset liquidation timing as well as possibly
result in adjustments to the amount owed by the property owner under the
tax lien obligation.
The value of the property as reflected on the records of the Department
of Finance of the City of New York (DFNYC) is used for all lien-to-value
computations. This creates exposure to the sponsor since these
are not necessarily as accurate or reliable as third party appraised values.
However in our view the DFNYC has developed a thorough system for determining
and periodically updating property values. The system relies on
a combination of comparables, models, property specific data
and site visits.
Credit enhancement is in the form of 28% of overcollateralization
and excess spread. The transaction also benefits from available
liquidity support provided by an interest reserve fund cash-funded
at closing with a required balance equal to the lesser of three months
of interest on the initial bond balance or six months of interest on the
current bond balance, a working capital reserve fund cash-funded
at closing with a required balance of $5.22 million,
and advancing by The Bank of New York Mellon (Aaa) as the Indenture Trustee
with a cap at any time not to exceed the lesser of $5 million or
10% of the then current aggregate tax lien principal balance.
PRINCIPAL RATING METHODOLOGY
Moody's believes that lien-to-value is the primary indicator
of the property owner's willingness to redeem the tax lien certificate.
In general, high lien-to-value properties are more
risky than low lien to value properties as recovery rates may be higher
for low lien to value properties, other things being the same.
Consistent with that view, in our methodology, we first assume
that tax liens related to properties with a lien-to-value
in excess of the threshold of 10% provide a proxy for the amount
of unredeemable collateral under scenarios commensurate with the Aaa desired
rating level. Therefore the portion of the liens with lien to value
greater than 10% is the initial basis for being indicative of the
appropriate credit support level for the desired Aaa (sf) rating.
Judgmental adjustment factors are then applied to determine the final
enhancement level based on other important collateral performance characteristics.
These judgmental adjustment factors include the following: current
and expected trends in real estate values; exposure to the repurchase
obligations of the sponsor for defective tax liens and the history of
repurchase volumes in prior deals; tax lien pool composition as compared
to prior pools; exposure to uncertain recovery expenses and the history
of recovery expenses in prior deals; and expected excess interest
vs. the uncertainty of the time when a tax lien will be redeemed
post closing. As an additional check, we used an alternative
approach to determining credit support for the desired rating.
We applied certain property-specific haircuts by property type
(ranging between 45% and 65%) to the property values provided
to Moody's by the deal's sponsor. This resulted in a Moody's adjusted
lien-to-value for the assets, with the percentage
of assets below certain thresholds translating into an indicative credit
support level given the desired rating.
The ratings on the securities are modestly exposed to the rating of The
City of New York primarily due to their liability for the repurchase of
defective assets. Due to matters ranging from administrative error
to tax payer litigation, the sponsor historically has repurchased
pursuant to requirements, amounts ranging up to 7% of the
transaction balance. The enhancement level incorporates this exposure
but does not completely eliminate the risk of sponsor repurchase default.
Other methodologies and factors that may have been considered in the process
of rating this issue can also be found in the Rating Methodologies sub-directory
on Moody's website.
MOODY'S V-SCORES & PARAMETER SENSITIVITIES
The V Score for this transaction is Low/Medium. The V Score indicates
"Low/Medium" uncertainty about critical assumptions. Moody's V
Scores provide a relative assessment of the quality of available credit
information and the potential variability around the various inputs to
a rating determination. The V Score ranks transactions by the potential
for significant rating changes owing to uncertainty around the assumptions
due to data quality, historical performance, the level of
disclosure, transaction complexity, the modeling and the transaction
governance that underlie the ratings. V Scores apply to the entire
transaction (rather than individual tranches).
Moody's Parameter Sensitivities: If the property value underlying
the determination of the initial rating were changed by 25.0%,
40.0%, or 65.0%, the initial model-indicated
output for the Class A notes might change from Aaa to Aa1, Aa2,
and A1, respectively.
Parameter Sensitivities are not intended to measure how the rating of
the security might migrate over time, rather they are designed to
provide a quantitative calculation of how the initial rating might change
if key input parameters used in the initial rating process differed.
The analysis assumes that the deal has not aged. Parameter Sensitivities
only reflect the ratings impact of each scenario from a quantitative/model-indicated
standpoint. Qualitative factors are also taken into consideration
in the ratings process, so the actual ratings that would be assigned
in each case could vary from the information presented in the Parameter
Additional research including a pre-sale report for this transaction
is available at www.moodys.com. The special report
"Updated Report on V Scores and Parameter Sensitivities for Structured
Finance Securities" is also available on 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 ww.moodys.com/SFQuickCheck.
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service
Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's assigns definitive rating of Aaa (sf) to NYCTL 2010-A Trust Tax Lien Collateralized Bonds
250 Greenwich Street
New York, NY 10007
No Related Data.
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