Approximately USD 11.6 million of securities affected
New York, May 13, 2014 -- Moody's Investors Service has confirmed the ratings on the following notes
issued by Longport Funding Ltd.:
U.S.$153,000,000 Class A-1A Senior
Secured Floating Rate Notes Due 2035 (current outstanding balance of $11,639,173.72),
Confirmed at Caa3 (sf); previously on March 6, 2014 Caa3 (sf)
Placed Under Review for Possible Upgrade;
U.S.$153,000,000 Notional Amount Class
A-1 Senior Secured Interest Only Notes Due 2035 (current notional
amount of $11,639,173.72), Confirmed at
Caa3 (sf); previously on March 6, 2014 Caa3 (sf) Placed Under
Review for Possible Upgrade.
Longport Funding Ltd., issued in January 2003, is a
structured finance collateralized debt obligation (SF CDO) backed primarily
by a portfolio of Residential Mortgage-Backed Securities (RMBS)
originated between 2000 and 2005. The transaction's reinvestment
period ended in January 2006.
RATINGS RATIONALE
According to Moody's, the rating confirmations on the Class
A-1A notes and Class A-1 notes reflect the adverse impact
of certain specific structural features of the transaction, which
are offset by the positive implications of the recent methodology update
and improved overcollateralization of the Class A-1A notes.
In particular, although the Class A-1A notes have sufficient
overcollateralization, these notes do not receive the benefit of
overcollateralization unless and until the Class B notes receive their
interest payments. Depending on the timing of any prepayments and
sales of the underlying collateral, principal proceeds may be used
to pay interest on the Class A-1A notes, the Class A-1
interest-only notes, the Class A-1B notes, the
Class A participating notes, the Class A-2 principal-only
notes, the Class A-3 notes and the Class B notes before paying
down the Class A-1A notes' principal, should interest
proceeds not be sufficient to pay the current interest on these notes.
In the past, principal proceeds were used to pay interest on some
of these notes prior to paying down the Class A-1A notes.
Moody's also announced that it has concluded its review of its rating
on the issuer's Class A-1A notes and Class A-1 notes announced
on March 6, 2014. At that time, Moody's said that it
had placed such notes' ratings on review primarily as a result of
an update to Moody's SF CDO methodology described in "Moody's Approach
to Rating SF CDOs" published on March 6, 2014. These updates
include: (i) lowering the resecuritization stress factors for RMBS
(US Prime, Subprime, Manufactured Housing), CDOs exposed
to investment grade corporate assets, and ABS backed by franchise
loans or by mutual fund fees; (ii) using a common table of recovery
rates for all structured finance assets (except for CMBS and SF CDO);
and (iii) providing more guidance on the rating caps we apply to deals
experiencing event of default.
Methodology Used for the Rating Action
The principal methodology used in this rating was "Moody's Approach to
Rating SF CDOs," published in March 2014. Please see the
Credit Policy page on www.moodys.com for a copy of this
methodology.
Factors that Would Lead to an Upgrade or Downgrade of the Rating
This transaction is subject to a number of factors and circumstances that
could lead to either an upgrade or downgrade of the ratings:
1) Macroeconomic uncertainty: Primary causes of uncertainty about
assumptions are the extent of any slowdown in growth in the current macroeconomic
environment and in the commercial and residential real estate property
markets. Although the commercial real estate property markets are
gaining momentum, consistent growth will be unlikely until the volume
of transactions increases, distressed properties are cleared from
the pipeline and job creation rebounds. The residential real estate
property market is subject to uncertainty about housing prices; the
pace of residential mortgage foreclosures, loan modifications and
refinancing; the unemployment rate; and interest rates.
2) Deleveraging: One source of uncertainty in this transaction is
whether deleveraging from unscheduled principal proceeds, recoveries
from defaulted assets, and excess interest proceeds will continue
and at what pace. Faster deleveraging than Moody's expects could
have a significant impact on the notes' ratings.
3) Recovery of defaulted assets: The amount of recoveries received
from defaulted assets reported by the trustee and those that Moody's assumes
as having defaulted as well as the timing of these recoveries create additional
uncertainty. Moody's analyzed defaulted assets assuming no recoveries,
and therefore, realization of any recoveries in the future would
positively impact the notes' ratings.
In addition to the base case analysis, Moody's also conducted sensitivity
analyses to test the impact of a number of default probabilities on the
rated notes. Below is a summary of the impact of different default
probabilities (expressed in terms of WARF) on all of the rated notes (by
the difference in the number of notches versus the current model output,
for which a positive difference corresponds to lower expected loss):
Caa ratings notched up by two rating notches (WARF at 1452)
Class A-1A: 0
Class A-1 Interest Only: 0
Caa ratings notched down by two notches (WARF at 1805):
Class A-1A: 0
Class A-1 Interest Only: 0
Loss and Cash Flow Analysis
Moody's applies a Monte Carlo simulation framework in Moody's CDOROM™
to model the loss distribution for SF CDOs. The simulated defaults
and recoveries for each of the Monte Carlo scenarios define the reference
pool's loss distribution. Moody's then uses the loss distribution
as an input in the CDOEdge™ cash flow model.
The key model inputs Moody's used in its analysis, such as par,
weighted average rating factor, and weighted average recovery rate,
are based on its methodology and could differ from the trustee's reported
numbers. In its base case, Moody's analyzed the underlying
collateral pool to have a performing par and principal proceeds balance
of $29.4 million, defaulted par amount (including
C and Ca assets) of $3.2 million and weighted average default
probability of 7.26% (implying a WARF of 1693). In
addition to the quantitative factors that are explicitly modeled,
qualitative factors are part of rating committee considerations.
Moody's considers the structural protections in the transaction,
the risk of triggering an Event of Default, recent deal performance
under current market conditions, the legal environment, and
specific documentation features. All information available to rating
committees, including macroeconomic forecasts, inputs 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.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions of the disclosure form.
Moody's did not receive or take into account a third-party
assessment on the due diligence performed regarding the underlying assets
or financial instruments related to the monitoring of this transaction
in the past six months.
Moody's describes its loss and cash flow analysis in the section
"Ratings Rationale" of this press release.
As the section on loss and cash flow analysis describes, Moody's
quantitative analysis entails an evaluation of scenarios that stress factors
contributing to sensitivity of ratings and take into account the likelihood
of severe collateral losses or impaired cash flows. Moody's
weights the impact on the rated instruments based on its assumptions of
the likelihood of the events in such scenarios occurring.
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides certain regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this rating action, and
whose ratings may change as a result of this rating action, the
associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Suzanna Sava
Asst Vice President - Analyst
Structured Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Ramon O Torres
Senior Vice President/Manager
Structured Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's confirms ratings on SF CDO notes issued by Longport Funding Ltd.
