New York, August 12, 2009 -- Moody's Investors Service has downgraded the ratings of 16 securities
issued by Morgan Stanley. The collateral backing the transactions
consists primarily of first-lien, fixed and adjustable-rate
Alt-A mortgage loans.
The downgrades relate to structural features, such as sequential
pay structures, whereby certain senior bonds are entitled to receive
more than their pro-rata share of principal payments. In
the event that subordinate bonds are written down entirely, these
bonds are subject to structural features that redirect principal payments
to be paid pro rata to all senior bonds, and/or direct losses to
be allocated pro rata to each of the outstanding senior bonds.
In either of those cases, given the recent increase in the pace
of credit support erosion relative to amortization of the bonds,
there is an increased likelihood that the downgraded bonds may not be
completely paid off before subordinate bonds are completely written down.
In its analysis, Moody's has considered current available
credit enhancement and recent CPR, CDR, and severity trends.
The cashflows were run on the basis of pool loss expectations in line
with those published in Q1 2009, although Moody's incorporated
short-term cashflow stresses to assess the resiliency of the bonds
impacted in today's actions.
In the Morgan Stanley Mortgage Loan Trust 2006-6AR transaction,
the Cl. 1-A-2 bond has a tranche factor of 1.6%.
The tranche has benefited from a sequential pay structure where it receives
the combined share of principal proceeds due to Cl. A-3,
Cl. A-4 and Cl. A-5. However,
in recent months, the realized losses in this transaction have depleted
the credit enhancement at a fast pace. In the event that the monthly
loss trend continues, Cl. 1-A-2 may have a
small outstanding balance at the credit support depletion date,
and may suffer a principal shortfall, as principal distribution
will go pro rata after mezzanine certificates are completely written down
.
It should be noted that, in general, Alt-A and Option
ARM delinquency trends in the past six months have closely tracked our
Q1 projections. If the pace of modifications picks up, delinquencies
may be lower than our projections. Severity trends, however,
have worsened, with current severities trending higher than our
lifetime average severity assumptions by 5-9 percentage points
in many pools. Given that recent data on the housing markets has
been mixed and there are early indications of home prices potentially
bottoming, it is unclear whether the recent higher severities represent
peak severities, and to what extent they might alter the average
lifetime expected severity.
For securities insured by a financial guarantor, the rating on the
securities is equal to the higher of (i) the guarantor's financial strength
rating and (ii) the current underlying rating (i.e.,
absent consideration of the guaranty) on the security. The principal
methodology used in determining the underlying rating is the same methodology
for rating securities that do not have a financial guaranty and is as
described above.
Other methodologies and factors that may have been considered in the process
of rating this issue, including the methodology publication "Alt-A
RMBS Loss Projection Update: January 2009," can also
be found at www.moodys.com in the Credit Policy & Methodologies
directory.
Complete Rating Actions are as follows:
Issuer: Morgan Stanley Mortgage Loan Trust 2006-12XS
Cl. A-1, Downgraded to A2; previously on 10/12/2006
Assigned Aaa
Cl. A-2A, Downgraded to Ba2; previously on 2/4/2009
Downgraded to Baa2
Cl. A-2B, Downgraded to Ca; previously on 2/4/2009
Downgraded to Baa3
Cl. A-3, Downgraded to Caa2; previously on 2/4/2009
Downgraded to B2
Issuer: Morgan Stanley Mortgage Loan Trust 2006-15XS
Cl. A-1, Downgraded to Baa2; previously on 2/4/2009
Downgraded to Aa2
Cl. A-2-A, Downgraded to B3; previously
on 2/4/2009 Downgraded to Ba1
Cl. A-2-B, Downgraded to B3; previously
on 2/18/2009 Downgraded to Ba1
Current Underlying Rating: Downgraded to B3; previously on
2/4/2009 Downgraded to Ba1
Financial Guarantor: MBIA Insurance Corporation (Downgraded to B3,
Outlook Negative on 6/25/2009)
Issuer: Morgan Stanley Mortgage Loan Trust 2006-17XS
Cl. A-1, Downgraded to Ba3; previously on 2/4/2009
Downgraded to Baa1
Cl. A-2-A, Downgraded to B3; previously
on 2/4/2009 Downgraded to Ba2
Cl. A-2-B, Downgraded to Ca; previously
on 2/4/2009 Downgraded to Ba3
Issuer: Morgan Stanley Mortgage Loan Trust 2006-6AR
Cl. 1-A-2, Downgraded to Baa3 and Placed Under
Review for further Possible Downgrade; previously on 2/4/2009 Downgraded
to Aa2
Cl. 1-A-3, Downgraded to Caa2; previously
on 2/4/2009 Downgraded to B3
Issuer: Morgan Stanley Mortgage Loan Trust 2006-7
Cl. 5-A-1, Downgraded to Ba2; previously
on 2/4/2009 Downgraded to Aa2
Cl. 5-A-2, Downgraded to Caa2; previously
on 2/4/2009 Downgraded to B3
Issuer: Morgan Stanley Mortgage Loan Trust 2006-9AR
Cl. A-3, Downgraded to Caa1; previously on 2/4/2009
Downgraded to Baa2
Issuer: Morgan Stanley Mortgage Loan Trust 2007-3XS
Cl. 2-A-1-B, Downgraded to Caa3;
previously on 2/4/2009 Downgraded to B2
New York
Amelia (Amy) Tobey
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Ola Hannoun-Costa
Associate Analyst
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's downgrades $592 million of Alt-A RMBS issued by Morgan Stanley