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Rating Action:

Moody's assigns ratings to five credit default swaps with Morgan Stanley Capital Services Inc.

22 Oct 2010

New York, October 22, 2010 -- Moody's Investors Service announced that it has assigned the following ratings to the credit default swaps (each, the "CDS") where Morgan Stanley Capital Services Inc. acts either as a Buyer or a Seller of protection:

Issuer: Morgan Stanley CDS Ref. #ZZRVW

U.S. $400,000,000 Credit Derivative Transaction December 20, 2013 (Ref. #ZZRVW) Notes, Assigned Aaa (sf)

Issuer: Morgan Stanley CDS Ref. #ZZRSS

U.S. $750,000,000 Credit Derivative Transaction June 20, 2014 (Ref. #ZZRSS) Notes, Assigned A2 (sf)

Issuer: Morgan Stanley CDS Ref. #ZZRRD

U.S. $40,000,000 Credit Derivative Transaction December 20, 2013 (Ref. #ZZRRD) Notes, Assigned Aaa (sf)

Issuer: Morgan Stanley CDS Ref. #ZZRQE

U.S. $444,000,000 Credit Derivative Transaction June 20, 2014 (Ref. #ZZRQE) Notes, Assigned Aa1 (sf)

Issuer: Morgan Stanley CDS Ref. #ZZRQD

U.S. $380,000,000 Credit Derivative Transaction March 20, 2014 (Ref. #ZZRQD) Notes, Assigned Aaa (sf)

RATINGS RATIONALE

CDS are referencing static portfolios of synthetic credit corporate exposures.

Moody's rating addresses the likelihood that, and extent to which, the Seller (a) will receive Fixed Payments under the Swap, and (b) will be required to make Floating Payments under the Swap. The rating does not address any potential losses that may result from the early termination of the Swap.

CDS are referencing static portfolios of synthetic credit corporate exposures with a fixed recovery rate in case of credit event. The portfolios are well diversified with not a significant concentration in finance, insurance, banking and real estate.

The 10 year weighted average rating factor (WARF) of the portfolios is 1004, equivalent to Ba2 (CDS Ref. #ZZRVW), 3098, equivalent to B3 (CDS Ref. #ZZRSS), 1050, equivalent to Ba2 (CDS Ref. #ZZRRD), 895, equivalent to Ba1 (CDS Ref. #ZZRQE) and 1118, equivalent to Ba2 (CDS Ref. #ZZRQD). The CDS have credit enhancement levels of 20%, 46%, 20%, 15% and 17.8% respectively.

In the process of assigning the ratings, Moody's took into account the results of a number of sensitivity analyses:

(1) Use of Market Implied Ratings - MIRs were used in place of the corporate fundamental ratings to derive the default probability of each corporate name in the reference portfolio. The gap between an MIR and a Moody's corporate fundamental rating is an indicator of the extent of the divergence of credit view between Moody's and the market. This MIR model run generated a result that was two notches better (CDS Ref. #ZZRSS), one notch better (Ref. #ZZRQE) and not different for the rest of the CDS than the result modeled under the base case.

(2) Additional stress on default probability - All reference entities in the portfolios were notched down by one rating. The result of this run showed no impact (CDS Ref. #ZZRVW), five notches worse (CDS Ref. #ZZRSS), two notches worse (CDS Ref. #ZZRQE and CDS Ref. #ZZRQD) and one notch worse (Ref. #ZZRRD) compared to the base case.

The V Score for these CDS is Medium/High. This V Score has been assigned in a manner similar to the Medium/High V score assigned for the global corporate synthetic CDO sector, as described in the special report titled, "V Scores and Parameter Sensitivities in the Global Corporate Synthetic CDO Sector", dated April 29, 2009, available on www.moodys.com. The absence of the valuation process in the CDS and the fact that the rating doesn't address potential losses upon early termination of the swaps are positive factors contributing to the "Market Value Sensitivity" sub-category of the V-Score.

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.

In addition, to the quantitative factors that are explicitly modeled, qualitative factors are part of rating committee considerations. These qualitative factors include the structural protections in each transaction, the legal environment, and specific documentation features. All information available to rating committees, including macroeconomic forecasts, input from other Moody's analytical groups, market factors, and judgments regarding the nature and severity of credit stress on the transactions, may influence the final rating decision.

The principal methodology used in rating the CDS was "Moody's Approach to Rating Corporate Synthetic Obligations" rating methodology published in September 2009. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found on Moody's website.

Moody's analysis for this transaction is based on CDOROMv2.6. This model is available on moodys.com under Products and Solutions -- Analytical models, upon return of a signed free license agreement.

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.

Due to the impact of revised and updated key assumptions referenced in "Moody's Approach to Rating Corporate Synthetic Obligations", key model inputs used by Moody's in its analysis may be different from the arranger's reported numbers. In particular, rating assumptions for all publicly rated corporate credits in the underlying portfolio have been adjusted for "Review for Possible Downgrade", "Review for Possible Upgrade", or "Negative Outlook".

Moody's did not run a separate loss and cash flow analysis other than the one already done using the CDOROM model. For a description of the analysis, refer to the methodology and the CDOROM user guide on Moody's website.

The base case scenario modeled fits into the central macroeconomic scenario predicted by Moody's of a sluggish recovery scenario of the corporate universe. Should macroeconomic conditions evolve towards a more severe scenario such as a double dip recession, the CDS ratings will likely be downgraded to an extent depending on the expected severity of the worsening conditions.

REGULATORY DISCLOSURES

Information source used to prepare the credit rating is the following: parties not involved in the ratings.

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of assigning a credit rating.

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 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.

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

New York
Eun Choi
MD - Structured Finance
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.

Moody's assigns ratings to five credit default swaps with Morgan Stanley Capital Services Inc.
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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