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09 Apr 2010
New York, April 09, 2010 -- Moody's Investors Service announced today that it has downgraded the rating
of one class of notes issued by Davis Square Funding II, Ltd..
The notes affected by today's rating action are as follows:
Class A-1 Long Term Floating Rate Notes, Downgraded to Ca;
previously on December 30, 2009 Downgraded to Caa3.
Davis Square Funding II, Ltd. is a collateralized debt obligation
issuance backed by a portfolio of primarily Residential Mortgage-Backed
Securities (RMBS) originated between 2001 and 2007.
According to Moody's, the rating downgrade action today is the result
of deterioration in the credit quality of the underlying portfolio.
Such credit deterioration is observed through numerous factors,
including a decline in the average credit rating of the portfolio (as
measured by an increase in the weighted average rating factor),
an increase in the dollar amount of defaulted securities, and failure
of the coverage tests. The weighted average rating factor,
as reported by the trustee, has increased from 593 in December 2009
to 664 in March 2010. In addition, the trustee reports that
the transaction is currently failing its overcollateralization test.
Moody's explained that in arriving at the rating action noted above,
the ratings of 2005-2007 subprime, Alt-A and Option-ARM
RMBS which are currently on review for possible downgrade were stressed.
For purposes of monitoring its ratings of SF CDOs with exposure to such
2005-2007 vintage RMBS, Moody's used certain projections
of the lifetime average cumulative losses as set forth in Moody's press
releases dated January 13th for subprime, January 14th for Alt-A,
and January 27th for Option-ARM. Based on the anticipated
ratings impact of the updated cumulative loss numbers, the stress
varied based on vintage, current rating, and RMBS asset type.
For 2005 Alt-A and Option-ARM securities, securities
that are currently rated Aaa or Aa were stressed by eleven notches,
and securities currently rated A or Baa were stressed by eight notches.
Those securities currently rated in the Ba or B range were stressed to
Caa3, while current Caa securities were treated as Ca. For
2006 and 2007 Alt-A and Option-ARM securities, currently
Aaa or Aa rated securities were stressed by eight notches, and securities
currently rated A, Baa or Ba were stressed by five notches.
Those securities currently rated in the B range were stressed to Caa3,
while current Caa securities were treated as Ca.
For 2005 subprime RMBS, those currently rated Aa, A or Baa
were stressed by five notches, Ba rated securities were stressed
to Caa3, and B or Caa securities were treated as Ca. For
subprime RMBS originated in the first half of 2006, those currently
rated Aaa were stressed by four notches, while Aa, A and Baa
rated securities were stressed by eight notches. Those securities
currently rated in the Ba range were stressed to Caa3, while current
B and Caa securities were treated as Ca. For subprime RMBS originated
in the second half of 2006, those currently rated Aa, A,
Baa or Ba were stressed by four notches, currently B rated securities
were treated as Caa3, and currently Caa rated securities were treated
as Ca. For 2007 subprime RMBS, currently Ba rated securities
were stressed by four notches, currently B rated securities were
treated as Caa3, and currently Caa rated securities were treated
Moody's noted that the stresses applicable to categories of 2005-2007
subprime RMBS that are not listed above will be two notches if the RMBS
ratings are on review for possible downgrade.
Moody's further explained that these stresses are based on a preliminary
sample analysis of deals from a given vintage and asset type, and
that they will be utilized in its SF CDO rating analysis while subprime,
Alt-A and Option-ARM securities remain on review for downgrade.
Current public ratings will be used for securities that have undergone
an in depth review by our RMBS team and are no longer on review for downgrade.
Moody's continues to monitor this transaction using primarily the methodology
and its supplements for ABS CDOs as described in Moody's Special Report
- Moody's Approach to Rating SF CDOs (August 2009)
Other methodologies and factors that may have been considered in the process
of rating this issue 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.
Senior Vice President
Structured Finance Group
Moody's Investors Service
Moody's downgrades the rating of Class A-1notes issued by Davis Square Funding II, Ltd., an ABS CDO
Structured Finance Group
Moody's Investors Service
No Related Data.
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