New York, September 03, 2010 -- Moody's Investors Service announced today that it has downgraded the rating
of one class of notes issued by Opus CDO I Limited. The notes affected
by today's rating action are as follows:
U.S.$435,500,000 Super Senior Swap (current
notional of $276,578,706), Downgraded to Ca (sf);
previously on March 24, 2009 Downgraded to Caa3 (sf).
According to Moody's, the rating downgrade action today is the result
of deterioration in the credit quality of the underlying reference 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),
and an increase in the dollar amount of defaulted securities. The
weighted average rating factor, as reported by the trustee,
has increased from 4991 in March 2009 to 6378 in August 2010. Defaulted
securities, as reported by the trustee, has also increased
from $16 million to $42 million in that period. Additionally,
approximately $25 million of RMBS within the underlying portfolio
are currently on review for possible downgrade as a result of Moody's
updated loss projections.
Moody's notes that in arriving at its ratings of ABS CDOs,
there exist a number of sources of uncertainty, operating both on
a macro level and on a transaction-specific level. Among
the general macro uncertainties are those surrounding future housing prices,
pace of residential mortgage foreclosures, loan modification and
refinancing, unemployment rate and interest rates. Also,
in arriving at the rating action described above, Moody's performed
sensitivity analyses whereby one or more key variables were changed.
For example, if defaulted assets in the reference portolio continue
to increase then the current rating could deteriorate by one notch.
Moody's explained that in arriving at the rating action noted above,
the ratings of 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 (sf) or Aa (sf) were stressed by eleven notches,
and securities currently rated A (sf) or Baa (sf) were stressed by eight
notches. Those securities currently rated in the Ba (sf) or B (sf)
range were stressed to Caa3 (sf), while current Caa (sf) securities
were treated as Ca (sf). For 2006 and 2007 Alt-A and Option-ARM
securities, currently Aaa (sf) or Aa (sf) rated securities were
stressed by eight notches, and securities currently rated A (sf)
, Baa (sf) or Ba (sf) were stressed by five notches. Those
securities currently rated in the B range were stressed to Caa3 (sf),
while current Caa (sf) securities were treated as Ca (sf).
For 2005 subprime RMBS, those currently rated Aa (sf), A (sf)
or Baa (sf) were stressed by five notches, Ba (sf) rated securities
were stressed to Caa3 (sf), and B (sf) or Caa (sf) securities were
treated as Ca (sf). For subprime RMBS originated in the first half
of 2006, those currently rated Aaa (sf) were stressed by four notches,
while Aa (sf), A (sf) and Baa (sf) rated securities were stressed
by eight notches. Those securities currently rated in the Ba (sf)
range were stressed to Caa3 (sf), while current B (sf) and Caa (sf)
securities were treated as Ca (sf). For subprime RMBS originated
in the second half of 2006, those currently rated Aa (sf),
A (sf) , Baa (sf) or Ba (sf) were stressed by four notches,
currently B (sf) rated securities were treated as Caa3 (sf), and
currently Caa (sf) rated securities were treated as Ca (sf). For
2007 subprime RMBS, currently Ba (sf) rated securities were stressed
by four notches, currently B (sf) rated securities were treated
as Caa3 (sf), and currently Caa (sf) rated securities were treated
as Ca (sf).
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.
For purposes of monitoring its ratings of SF CDOs with exposure to pre-2005
vintage RMBS, Moody's considered the various factors indicating
continued negative performance that were described in Moody's press releases
dated April 8th for subprime, April 12th for Option-ARM and
April 13th for Alt-A. Such seasoned deals will have varying
stress based on RMBS asset type.
For pre-2005 Alt-A, Aaa (sf) rated securities were
stressed by four notches, Aa (sf) rated securities by six notches,
and A (sf ) or Baa (sf) rated securities by nine notches. Pre-2005
Option-ARM securities currently rated Aaa (sf) were stressed by
two notches, Aa (sf) and A (sf) by six notches, and Baa (sf)
by nine notches.
For pre-2005 subprime, Aaa (sf) and Aa (sf) rated securities
were stressed by two notches, A (sf) rated securities were stressed
by six notches, and Baa (sf) rated securities were stressed by nine
All subprime, Alt-A and Option-ARM RMBS securities
which originated prior to 2005, are currently rated Ba (sf) or below,
and are also currently on review for possible downgrade have been stressed
to Ca (sf).
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 that are no longer on review
In addition to the quantitative factors that are explicitly modeled,
qualitative factors are part of rating committee considerations.
These qualitative factors include the structural protections in each transaction,
the recent deal performance in the current market environment, the
legal environment, specific documentation features, the collateral
manager's track record, and the potential for selection bias in
the portfolio. All information available to rating committees,
including macroeconomic forecasts, input 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.
In deriving its ratings, Moody's uses the collateral instrument's
current rating-based expected loss, Moody's recovery rate
table, and the original rating of the instrument along with its
average life to infer an unadjusted default probability.
The approach Moody's takes to defining the default distribution
for the SF CDO collateral depends on the structure of the CDO itself.
Moody's applied the Monte Carlo simulation framework within CDOROMv2.6
to model the loss distribution for SF CDOs. Within this framework,
defaults are generated so that they occur with the frequency indicated
by the adjusted default probability pool (the default probability associated
with the current rating multiplied by the Resecuritization Stress) for
each credit in the reference. Specifically, correlated defaults
are simulated using a normal (or "Gaussian") copula model
that applies the asset correlation framework. Recovery rates for
defaulted credits are generated by applying within the simulation the
distributional assumptions, including the correlation between recovery
values. Together, the simulated defaults and recoveries across
each of the Monte Carlo scenarios define the loss distribution for the
The capital structure is incorporated into CDOROM by specifying the attachment
point and the thickness of the tranche. The Expected Loss (EL)
for each tranche is the weighted average of losses to each tranche across
all the scenarios, where the weight is the likelihood of the scenario
occurring. Moody's defines the loss as the shortfall in the
present value of cash flows to the tranche relative to the present value
of the promised cash flows. The discount rate used to present value
is the current swap rate plus the promised spread on the tranche based
on its remaining maturity. Solely for the purpose of discounting
losses, Moody's assumes that losses on the tranche occur 60%
of the way through the maturity of the tranche. The final EL of
the synthetic SF CDO tranche is the discounted average of the tranche
loss across all the scenarios simulated in CDOROM. Since the EL
is based on a simulation process, the convergence of the simulation
will depend, in part, on the number of iterations chosen for
the simulation. Moody's applies a 99% confidence interval
to the EL result using a Standard Error equal to the square root of the
EL Variance divided by the number of Monte Carlo simulations. If
this confidence interval adjustment is significant, a larger number
of iterations may be used to reduce the standard error.
The principal methodology used in rating Opus CDO I Limited was "Moody's
Approach to Rating SF CDOs" rating methodology published in August 2009.
Other methodologies and factors that may have been considered in the process
of rating this issuer can also be found on Moody's website.
Moody's Investors Service did not receive or take into account a third
party due diligence report on the underlying assets or financial instruments
related to the monitoring of this transaction in the past 6 months.
Information sources used to determine the credit rating are the following:
1. Trustee, 2. Public information, 3.
Confidential and proprietary MIS information, 4. Confidential
and proprietary Moody's Analytics information.
Moody's Investors Service considers the quality of information available
on the issuer satisfactory for the purposes of maintaining a credit rating.
Further information on Moody's analysis of this transaction is available
on www.moodys.com. In addition, Moody's
publishes a weekly summary of structured finance credit, ratings
and methodologies, available to all registered users of our website,
MOODY'S adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
MOODY'S considers to be reliable including, when appropriate,
independent third-party sources. However, MOODY'S
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Senior Vice President
Structured Finance Group
Moody's Investors Service
Structured Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's downgrades the rating of Notes issued by Opus CDO I Limited, an ABS CDO
250 Greenwich Street
New York, NY 10007