New York, February 04, 2015 -- Moody's Investors Service has downgraded the ratings of the following
notes issued by High Grade Structured Credit CDO 2004-1 Ltd.:
U.S. $68,750,000 Class C Floating Rate
Notes (current outstanding balance of $10,750,000),
Downgraded to C (sf); previously on October 8, 2014 Caa3 (sf)
Placed Under Review for Possible Downgrade;
U.S. $40,000,000 Class D Floating Rate
Notes (current outstanding balance of $25,000,000),
Downgraded to C (sf); previously on October 8, 2014 Ca (sf)
Placed Under Review for Possible Downgrade;
U.S. $10,000,000 Class E Floating Rate
Notes, Downgraded to C (sf); previously on October 8,
2014 Ca (sf) Placed Under Review for Possible Downgrade;
U.S. $10,000,000 Class F Floating Rate
Notes (current outstanding balance of $ 6,926,950),
Downgraded to C (sf); previously on October 8, 2014 Ca (sf)
Placed Under Review for Possible Downgrade.
High Grade Structured Credit CDO 2004-1 Ltd. is a synthetic
collateralized debt obligation issuance referencing a portfolio of US
Dollar-denominated RMBS, CMBS and SF CDO tranches,
originated between 2003 and 2004.
RATINGS RATIONALE
These rating actions are primarily driven by the deterioration in the
credit quality of the reference pool of the deal. Moody's notes
that $124.3 million or 59.1% of the reference
pool is currently rated C indicating very high default probabilities and
limited recoveries. A significant number of these C-rated
reference obligations have failed to make cash interest payments which
may result in multiple "Credit Events" in accordance with the transaction's
governing documents. Moody's anticipates that the issuer,
as the protection seller, will incur significant additional losses
as a result of these Credit Events. Although there is uncertainty
with respect to the timing and the occurrence of Credit Events and the
ultimate realization of losses, Moody's anticipates very limited
recoveries on any of the rated notes.
Moody's has also concluded its review of the ratings on the issuer's Class
C, Class D, Class E and Class F notes announced on October
8, 2014. At that time, Moody's placed the ratings
on review for downgrade as it needed more time to identify the total amount
of potential Credit Events based on the credit swap agreement and assess
the final ratings impact of the related losses.
Methodology Underlying 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 the Rating:
Moody's notes that this transaction is generally subject to a high level
of macroeconomic uncertainties affecting the credit performance of RMBS,
CMBS, and structured finance securities. 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. In addition, the transaction is directly
impacted by the decisions of transaction parties relating to the assessment
of Credit Events and the timing of declaring such Credit Events.
Loss and Cash Flow Analysis:
Moody's did not model the transactions and no additional sensitivities
or stress scenarios were run on the affected transactions because the
rating actions are primarily driven by the assessment of the impact of
the Credit Events yet to be declared.
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.
Moody's did not use any stress scenario simulations in its analysis.
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.
Haoning Ding
Associate 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 downgrades ratings on USD 52.7 million of SF CDO notes issued by High Grade Structured Credit CDO 2004-1 Ltd.
