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03 Mar 2010
$16,000,000 original issuance amount of notes affected
New York, March 03, 2010 -- Moody's Investors Service announced today that it has downgraded the ratings
of one class of notes issued by G Square Finance 2006-1,
Ltd. as follows:
Class X Senior Secured Floating Rate Notes due 2051, (current balance
of $8,694,377) Downgraded to A1; previously on
8/20/2009 Downgraded to Aa2.
G Square Finance 2006-1, Ltd. is a collateralized
debt obligation backed by a portfolio of ABS securities, primarily
The rating downgrade action today reflects deterioration in the credit
quality of the underlying portfolio as indicated by rating actions taken
with respect to underlying assets. Credit deterioration of the
collateral pool is observed through a decline in the average credit rating
(as measured by an increase in the weighted average rating factor (WARF))
and failure of the coverage tests, among other measures.
The ratings of approximately 57% of the underlying assets were
placed on review for downgrade in January 2010 following the release of
Moody's updated loss projections for RMBS securities originated
between 2005 and 2007. The trustee reports that the WARF of the
portfolio has increased to 1599 as of January 29, 2010. In
addition, the Trustee reports that the transaction is currently
failing all par value and interest coverage tests.
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.
The stress varies based on vintage, current rating, and RMBS
asset type. For purposes of monitoring its ratings of SF CDOs with
exposure to 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 13, 2010 for subprime,
January 14, 2010 for Alt-A, and January 27, 2010
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.
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.
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.
Today's actions also take into consideration the risk of the transaction
experiencing an Event of Default (EoD) caused by missed interest payments
on the Class A or Class B notes. As provided in Condition 10 of
the Trust Deed dated March 31, 2006 during the occurrence and continuance
of an EoD, certain parties to the transaction may be entitled to
direct the Trustee to take particular actions with respect to the Collateral
and the Notes, including the sale and liquidation of the assets.
The severity of losses of certain tranches may be different depending
on the timing and outcome of liquidation.
To address the EoD risk, Moody's surveillance committees have
applied "Soft Caps" as an additional guide in reaching consistent
rating adjustments across SF CDO transactions. For details about
"Soft Caps" and their application, please refer to "Structured Finance
CDO Ratings Surveillance Brief - Third Quarter 2009" published
on November 5, 2009 at www.moodys.com.
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)
This report can be found at www.moodys.com in the Rating
Methodologies sub-directory under the Research & Ratings tab.
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.
Senior Vice President
Structured Finance Group
Moody's Investors Service
Moody's downgrades the ratings of Class X notes issued by G Square Finance 2006-1, Ltd., an ABS CDO
Structured Finance Group
Moody's Investors Service
No Related Data.
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