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Rating Action:

Moody's assigns provisional rating of (P)Aaa to NYCTL 2010-A Trust Tax Lien Collateralized Bonds

26 Jul 2010

Approximately $73.4 Million of Asset-Backed Securities Rated.

New York, July 26, 2010 -- Moody's Investors Service has assigned a provisional rating of (P)Aaa to Class A tax lien collateralized bonds to be 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 is 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 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 (P)Aaa

RATING RATIONALE

The provisional rating of (P)Aaa 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 parri 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 % 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.

COLLATERAL SUMMARY

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 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 the property types 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, 3rd 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 ENHANCEMENTS

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 of 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 (P)Aaa 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 threshold 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 to 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 rating 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 Sensitivity analysis.

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 www.moodys.com/SFQuickCheck.

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

New York
Xiaochao Wang
Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's assigns provisional rating of (P)Aaa to NYCTL 2010-A Trust Tax Lien Collateralized Bonds
No Related Data.
© 2018 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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