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02 Jun 2010
Approximately $20 million of synthetic securitizations of U.S. farm mortgage loans affected
New York, June 02, 2010 -- Moody's has confirmed the ratings of the subordinate notes in two
synthetic securitizations of U.S. farm mortgage loans originated
& serviced by Northwest Farm Credit Services. The notes issued
in the 2007-A securitization remain on review. The securitizations
are primarily Credit Default Swaps (CDS) to cover any losses on the underlying
reference pools of loans made to farmers in the Pacific Northwest.
The pools consist of real estate-secured first lien agribusiness
loans. Under the terms of the agreement, the CDS is required
to pay an amount equal to the outstanding balance of a defaulted loan
less recoveries if such defaults exceed the unrated first loss tranche.
The notes were placed on review for possible downgrade in March 2010 because
of the increase in late stage delinquencies which exposed them to potential
losses. During the review period Moody's has obtained information
on the underlying pool. The loans have strong loan to value (LTV)
levels and relatively strong credit profile of the borrowers (i.e.,
high FICO scores and low debt to asset/income ratios). Furthermore,
delinquencies in the 2002-A and 2004-A pools have decreased
substantially since the review because of successful resolutions and payoffs.
Assuming a 100% roll rate to default for all loans that are more
than 60 days past due and a 25%-50% severity,
the Ba2 rated notes in the 2002-A & 2004-A securitizations
have 2.5-9.1 times loss coverage. Similarly,
the B2 rates notes in the two securitizations have 1.5-4.5
Because delinquencies of the 2007-A transaction have remained relatively
high, Moody's will continue reviewing this transaction.
Because the tranches on review are relatively small relative to the overall
rated amounts, they are very sensitive to even small increases in
losses on the reference pool. In addition, the notes have
less credit support than similarly rated notes of the remaining Spokane
transactions. Assuming a 100% roll rate to default for all
loans that are more than 60 days delinquent, the Baa2 rated notes
in the 2007-A securitization have 2.5-4.9
times coverage, assuming a 25%-50% severity
level. Similarly, the Ba2 rates notes have 1.2-2.5
times coverage and the B2 rated certificates have 0.9-1.6
times coverage assuming similar severity levels.
In our approach to projecting cumulative losses, we apply stressed
roll rates and loss severity assumptions for a projected stress period
and less severe assumptions for a projected stable period thereafter.
Our stress and stable period forecasts are in line with Moody's
Economy.com's baseline economic forecast. The stressed
assumptions are derived from actual roll rates and loss severities measured
at different points in time during the current recession. In projecting
expected losses over the stable economic period in the future, Moody's
softens its assumptions to match the pre-recession levels.
A transaction's ultimate expected losses are determined by adding
the resulting stable period projected losses to the stressed period projected
losses and the pool's current realized losses. The factors
driving the Aaa credit enhancement level for the deal include the credit
quality of the collateral pool, industrial and geographical concentrations,
obligor concentrations, the historical variability of losses,
the servicing quality, and the structural features of the deal.
Once the expected loss and Aaa proxy levels are established, the
adequacy of available credit enhancement to the existing ratings is assessed
using a cash flow model. The model incorporates a set of assumptions
about the collateral performance, including but not limited to the
timing and level of loan losses, the level of prepayments,
and interest rates, to assess whether the rated notes can be paid
back in full under the assumptions and given the proposed capital structure
and collateral pool characteristics. Moody's benchmarks the
Aaa credit enhancement level to obtain the levels for other ratings using
a lognormal distribution of losses.
Other methodologies and factors that may have been considered in the process
of rating this deal can also be found in the Rating Methodologies sub-directory
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.
The complete rating actions are as follows:
Issuer: Mt. Spokane 2004-A LLC
Cl. E, Confirmed at Ba2; previously on Mar 3,
2010 Ba2 Placed Under Review for Possible Downgrade
Cl. F, Confirmed at B2; previously on Mar 3, 2010
B2 Placed Under Review for Possible Downgrade
Issuer: Mt. Spokane Trust 2002-A
Class E, Confirmed at Ba2; previously on Mar 3, 2010
Ba2 Placed Under Review for Possible Downgrade
Class F, Confirmed at B2; previously on Mar 3, 2010 B2
Placed Under Review for Possible Downgrade
Issuer: Mt. Spokane 2007-A LLC
Class D, Baa2 Remains Under Review for Possible Downgrade;
previously on Mar 3, 2010 Baa2 Placed Under Review for Possible
Class E, Ba2 Remains Under Review for Possible Downgrade; previously
on Mar 3, 2010 Ba2 Placed Under Review for Possible Downgrade
Certificates, B2 Remains Under Review for Possible Downgrade;
previously on Mar 3, 2010 B2 Placed Under Review for Possible Downgrade
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service
Structured Finance Group
Moody's Investors Service
Moody's confirms ratings of subordinate notes in Mt. Spokane 2002-A and 2004-A; continues review of 2007-A
No Related Data.
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