New York, November 01, 2010 -- Moody's Investors Service has assigned a Aa3(sf) rating on the Certificate
Swap to the IndyMac INDX Mortgage Loan Trust 2006-AR15 transaction
on July 2, 2010. 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 swap. The rating does not address market
risk that may be experienced by the party facing the trust under the swap
Issuer: IndyMac INDX Mortgage Loan Trust 2006-AR15
Swap: Certificate Swap (Reference Number N480827N)
Interest Rate Swap, Assigned Aa3 (sf)
The rating takes 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 a notional amount that can be found
in a schedule to the swap agreement. The Certificate Swap is one
of two interest rate swaps that the trust has entered into with the swap
counterparty. Per the terms of the deal documents, the swap
counterparty for each of the swaps receives payments, concurrently,
prior to bondholders, and is thus in a senior position to all bonds
issued by the trust. The termination date for the Certificate Swap
is 25th April, 2011. The other swap is a basis risk swap
tied to the Class A-1 certificates. 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 counterparty.
The primary risks driving the rating on the swap is the risk that the
collateral pool amortizes at a rate that exceeds the amortization rate
of the swap notional and the risk of a termination event triggered by
a default of the swap counterparty. The risk that the collateral
balance would amortize faster than the swap notional is deemed remote
due to the slower prepayment rate on the collateral pool and short remaining
life of the swap. 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 swap in this transaction
passed cashflow scenarios that were consistent with Aaa collateral cashflow
stresses. Additional qualitative considerations that were not modeled,
such as the impact of a decline in the weighted average interest rate
of the collateral pool, interest rate reduction modifications or
more conservative servicer advancing approaches, were also analyzed.
Consideration of these factors brought the rating to Aa3 (sf) for the
Moody's projected remaining loss on the mortgage pool as a percentage
of the current balance is 40%.
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.
Asst Vice President - Analyst
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 ratings to swap in IndyMac INDX Mortgage Loan Trust 2006-AR15, an RMBS transaction
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