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05 Nov 2010
New York, November 05, 2010 -- Moody's Investors Service has downgraded the ratings of 3 tranches from
2 RMBS transactions issued by GSC Capital Corp. The collateral
backing these deals primarily consists of first-lien, adjustable
rate Alt-A residential mortgages.
The actions are a result of the continued performance deterioration in
Alt-A pools in conjunction with home price and unemployment conditions
that remain under duress. The actions reflect Moody's updated loss
expectations on Alt-A pools issued from 2005 to 2007.
To assess the rating implications of the updated loss levels on Alt-A
RMBS, each individual pool was run through a variety of scenarios
in the Structured Finance Workstation® (SFW), the cash flow
model developed by Moody's Wall Street Analytics. This individual
pool level analysis incorporates performance variances across the different
pools and the structural features of the transaction including priorities
of payment distribution among the different tranches, average life
of the tranches, current balances of the tranches and future cash
flows under expected and stressed scenarios. The scenarios include
ninety-six different combinations comprising of six loss levels,
four loss timing curves and four prepayment curves. The volatility
in losses experienced by a tranche due to small increments in losses on
the underlying mortgage pool is taken into consideration when assigning
The principal methodology used in these ratings was "Alt-A RMBS
Loss Projection Update: February 2010" published in February 2010.
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.
The above mentioned approach "Alt-A RMBS Loss Projection Update:
February 2010" is adjusted slightly when estimating losses on pools left
with a small number of loans. To project losses on pools with fewer
than 100 loans, Moody's first estimates a "baseline" average rate
of new delinquencies for the pool that is dependent on the vintage of
loan origination (10%, 19% and 21% for the
2005, 2006 and 2007 vintage respectively). This baseline
rate is higher than the average rate of new delinquencies for the vintage
to account for the volatile nature of small pools. Even if a few
loans in a small pool become delinquent, there could be a large
increase in the overall pool delinquency level due to the concentration
risk. Once the baseline rate is set, further adjustments
are made based on 1) the number of loans remaining in the pool and 2)
the level of current delinquencies in the pool. The fewer the number
of loans remaining in the pool, the higher the volatility and hence
the stress applied. Once the loan count in a pool falls below 75,
the rate of delinquency is increased by 1% for every loan less
than 75. For example, for a pool with 74 loans from the 2005
vintage, the adjusted rate of new delinquency would be 10.10%.
If current delinquency levels in a small pool is low, future delinquencies
are expected to reflect this trend. To account for that,
the rate calculated above is multiplied by a factor ranging from 0.2
to 2.0 for current delinquencies ranging from less than 2.5%
to greater than 50% respectively. Delinquencies for subsequent
years and ultimate expected losses are projected using the approach described
in the methodology publication.
The primary source of assumption uncertainty is the current macroeconomic
environment, in which unemployment remains at high levels,
and weakness persists in the housing market. Moody's notes an increasing
potential for a double-dip recession, which could cause a
further 20% decline in home prices (versus its baseline assumption
of roughly 5% further decline). Overall, Moody's assumes
a further 5% decline in home prices with stabilization in early
2011, accompanied by continued stress in national employment levels
through that timeframe.
A list of updated estimated pool losses, sensitivity analysis,
and tranche recovery details is being posted on an ongoing basis for the
duration of this review period and may be found at:
For more information please see www.moodys.com.
Moody's Investors Service received and took into account one or more third
party due diligence reports on the underlying assets or financial instruments
in this transaction and the due diligence reports had a neutral impact
on the rating.
Complete rating actions are as follows:
Issuer: GSC Capital Corp. Mortgage Trust 2006-1
Cl. A-1, Downgraded to Caa3 (sf); previously
on Jan 14, 2010 Caa1 (sf) Placed Under Review for Possible Downgrade
Cl. A-2, Downgraded to C (sf); previously on
Jan 14, 2010 Ca (sf) Placed Under Review for Possible Downgrade
Issuer: GSC Capital Corp. Mortgage Trust 2006-2
Cl. A-1, Downgraded to Ca (sf); previously on
Jan 14, 2010 Caa3 (sf) Placed Under Review for Possible Downgrade
A list of these actions including CUSIP identifiers may be found at:
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, public information, confidential
and proprietary Moody's Investors Service information, and confidential
and proprietary Moody's Analytics information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
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.
Structured Finance Group
Moody's Investors Service
Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's downgrades the ratings of $371 million of Alt-A RMBS issued by GSC Capital Corp. in 2006
250 Greenwich Street
New York, NY 10007
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