New York, January 11, 2011 -- Moody's Investors Service has assigned a A1 (sf) rating on the Certificate
Swap and the Subordinate Swap to the CWALT, Inc. Mortgage
Pass-Through Certificates, Series 2007-HY9 transaction.
Moody's rating addresses the credit risk posed to the swap counterparty.
This rating only addresses the risk attributable to the ability of the
trust to continue to honor its obligations under the swaps. The
rating does not address market risk that may be experienced by the party
facing the trust under the swap contracts.
Issuer: CWALT, Inc. Mortgage Pass-Through Certificates,
Swaps: Certificate Swap (Reference Number N659812N), Subordinate
Swap (Reference Number N659814N)
Interest Rate Swap (Certificate Swap), Assigned A1 (sf)
Interest Rate Swap (Subordinated Certificate Swap), Assigned A1
The ratings take into account the rating of the swap counterparty,
the transaction's legal structure and the characteristics of the
collateral mortgage pool of the respective trust. Because there
is relatively limited historical performance data for the types of instruments,
this credit rating may have a greater potential rating volatility than
would ratings for transactions supported by more historical performance
Our rating approach for this counterparty instrument rating (CIR) rests
on three propositions:
» The CIRs are based on an analysis of the payment promise made by
the trust, the position of the instrument in the payment waterfall,
the credit quality of the rated payment flows, the security arrangements
governing the trust's relationship with the counterparty,
the support mechanisms available to the counterparty, the termination
date of the swap and other structural features of the transaction in question.
In this regard, the rating process is similar to that for all other
ratings assigned by Moody's.
» The credit quality and ratings assigned to counterparty instrument
obligations of the trust may differ from those of its payment obligations
to bondholders. As a result, ratings assigned to bonds issued
by the trust may diverge from the CIR and therefore the bond ratings may
offer only a limited guidance on the CIR.
» Although counterparty instrument ratings address payments to rather
than from the counterparty, in certain circumstances the credit
strength of the counterparty itself may have a bearing on the CIR.
For example, where a counterparty's non-performance
under a swap agreement leads to the trust having to make a termination
payment to that counterparty, Moody's will take into account
the likelihood of the counterparty's non-performance occurring
and the position of termination payments in the cash flow waterfall .
Specifically, in the event that the swap counterparty causes a termination
event, any termination payment owed to the swap counterparty may
be paid at the bottom of the cash flow waterfall. As a result,
a default by the swap counterparty, which is currently rated Aa3,
makes payment in full to the counterparty unlikely.
By way of background, the swap counterparty, Deutsche Bank
AG, New York Branch in this case, receives a fixed rate from,
and pays LIBOR to, the trust on notional amounts that are monthly
amounts set forth in the schedules to the swap agreements. Per
the terms of the deal documents, the swap counterparty receives
payments from each swap prior to bondholders, and is thus in a senior
position to all bonds issued by the trust. These payments are made
pro-rata based on the relative size of each obligation which allows
both swaps to have the same rating. The termination date for the
Certificate Swap and for the Subordinate Swap is 25th July, 2012.
To pay the swap counterparty, the trust also has access to principal
payments, liquidation proceeds and interest collections.
This provision strengthens the nature of senior payment right of the swap
The primary risks driving the rating on the swaps is the risk that the
collateral pool amortizes at a rate that exceeds the amortization rate
of the swaps' notional balances and the risk of a termination event
triggered by a default of the swap counterparty. As the notional
amounts are fixed according to a monthly schedule, it is likely,
especially in high default scenarios, that the collateral balance
would amortize faster than the swaps' notional balances.
The counterparty in the swap, Deutsche Bank AG, New York Branch,
has a Aa3 long term rating and a P-1 short term rating by Moody's.
Our methodology for rating swaps on US RMBS transactions includes running
collateral cashflows and considers the rating of the swap counterparty.
We stress the cashflows by increasing defaults and prepayments to determine
what level of collateral stress would cause a shortfall in proceeds owed
to the swap counterparty. The cashflows are modeled to reflect
the waterfall of the underlying transaction, which results in all
swap payments other than termination payments caused by a counterparty
default coming at the top of the waterfall. Termination payments
owed to the swap counterparty resulting from a default of the swap counterparty
are paid at the bottom of the waterfall. The swaps in this transaction
passed scenarios consistent with the Aa1 collateral cashflow stresses.
Sensitivity to a decline in the weighted average interest rate of the
collateral pool was also analyzed. However, when considering
the swap provider's long term rating, Aa3, the remaining
life of the swap and additional qualitative considerations that were not
modeled, such as interest rate reduction modifications or more conservative
servicer advancing approaches, Moody's assigned the swaps
a A1 (sf) rating.
Moody's projected remaining loss on the mortgage pool as a percentage
of the current balance is 44%.
Other methodologies and factors that may have been considered in the process
of rating this issuer can also be found on Moody's website.
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 in this transaction.
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 information, and confidential and proprietary Moody's
Moody's Investors Service considers the quality of information available
on the issuer of obligation satisfactory for the purposes of assigning
a credit rating. However, the credit rating action was based
on limited historical data.
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.
Scott Adam Friedman
Structured Finance Group
Moody's Investors Service
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's assigns rating to swaps in CWALT, Inc. Mortgage Pass-Through Certificates, Series 2007-HY9, an RMBS transaction
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