Approximately US$ 346 million debt affected
New York, April 20, 2011 -- Moody's Investors Service announced today that it has downgraded four
classes of notes issued by Soloso CDO 2005-1, Ltd.:
U.S. $170.0 million Class A-1L Floating
Rate Notes Due October 2035 (current balance $ 152,456,952.53),
Downgraded to B1 (sf); previously on March 27, 2009 Downgraded
to Baa3 (sf);
U.S. $126.0 million Class A-1LA Floating
Rate Notes Due October 2035 (current balance $108,972,924.50),
Downgraded to Ba3 (sf); previously on March 27, 2009 Downgraded
to Baa2 (sf);
U.S. $39.0 million Class A-1LB Floating
Rate Notes Due October 2035 (current balance $39,000,000),
Downgraded to B3 (sf); previously on March 27, 2009 Downgraded
to Ba1 (sf);
U.S. $45.5 million Class A-2L Deferrable
Floating Rate Notes Due October 2035 (current balance $45,742,717.34,
including interest shortfall), Downgraded to Ca (sf); previously
on October 30, 2009 Downgraded to Caa3 (sf);
Soloso CDO 2005-1, Ltd. issued on August 24,
2005, is a collateral debt obligation backed by a portfolio of bank
trust preferred securities (the 'TRUP CDO').
Moody's indicated that the rating actions on the notes are primarily the
result of an increase in the assumed defaulted amount of the pool.
The assumed defaults increased by $87M since the last rating action
on October 30, 2009. Moody's assumed defaulted amount currently
totals $201.98 million (42.3% of the portfolio).
All of the assumed defaulted assets are carried at zero recovery in our
analysis. The remaining performing assets in the portfolio have
also experienced an improvement on the credit quality of the pool,
as indicated by a WARF reduction to 1404, from 2273 as of the last
rating action date. This current WARF accounts for a credit estimate
stress, described in Moody's Rating Methodology "Updated Approach
to the Usage of Credit Estimates in Rated Transactions", October
The par loss due to the increase in the assumed defaulted amount has resulted
in loss of overcollateralization for the tranches affected and an increase
of their expected losses since the last rating action..
As of the latest trustee report dated January 07, 2011, the
Senior Overcollateralization Ratio is reported at 107.77%
(limit of 115.00%), the Class A2 Overcollateralization
Ratio at 93.56% (limit of 112.00%),
the Class A3 Overcollateralization Ratio at 76.00% (limit
of 105.00%) and the Class B Overcollateralization Ratio
at 70.76% (limit of 103.5%). Moody's
has noticed that the transaction continues to be negatively impacted by
large imbalanced fixed-floating interest rate swaps, that
results in significant payments to the hedge counterparty. In this
case, the magnitude of the imbalance between the cash inflows and
outflows due to the presence of over-hedging has been magnified
by the increase in the defaulted assets in the collateral portfolio.
In its analysis, Moody's has accounted for the reduction of cash
available to pay the notes due to the significant swap payments to the
In our analysis, we assume that there are no prepayments and the
assets amortize at their final maturity. The weighted average life
of the portfolio is approximately 25 years.
The credit deterioration exhibited by this TRUP CDO portfolio is a reflection
of the continued pressure in the banking sector as the number of bank
failures and interest deferrals of bank trust preferred securities has
continued to increase. According to FDIC data, 32 U.S.
banks have failed so far in 2011, while 157 U.S. banks
failed in all of 2010, 140 U.S. banks failed in 2009
and 25 in 2008.
This portfolio is composed of trust preferred securities issued by small
to medium sized U.S. community bank that are generally not
publicly rated by Moody's. To evaluate their credit quality,
Moody's uses RiskCalc model, an econometric model developed by Moody's
KMV, to derive credit scores for these non-publicly rated
trust preferred securities. Moody's evaluation of the credit risk
for a majority of obligors in the pool relies on FDIC financial data received
as of Q3-2010.
Moody's evaluates the sensitivity of the rated transactions to the volatility
of the credit estimates, as described in Moody's Rating Methodology
"Updated Approach to the Usage of Credit Estimates in Rated Transactions,"
October 2009. For each credit score or credit estimate where the
related exposure constitutes more than 3% of the collateral pool,
Moody's applied a 2-notch equivalent assumed downgrade (but on
the CEs representing in aggregate the largest 30% of the pool)
in lieu of the aforementioned stresses. Notwithstanding the foregoing,
in all cases the lowest assumed rating equivalent is Caa3. The
effect of stress testing of these credit scores varies between one and
three notches, depending on the total amount and relative size of
these securities in the collateral pool.
Moody's performed a number of sensitivity analyses on some of the key
factors driving the ratings. The sensitivity analysis includes
further increase and decrease to the WARF (representing a slight improvement
and a slight deterioration of the credit quality of the collateral pool)
and the results indicate a one-notch downward movement on Senior
Notes when WARF was increased by 200 and a one-notch upward movement
when the WARF was decreased by 244.
In addition to the quantitative factors that are explicitly modeled,
qualitative factors are part of rating committee considerations.
Moody's considers as well the structural protections in each transaction,
risk Event of Default (EoD), the recent deal performance in the
current market environment, the legal environment, and specific
documentation features. 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
The principal methodology used in this rating was "Moody's Approach to
Rating U.S. Bank Trust Preferred Security CDOs" published
in June 2010.
Due to the impact of revised and updated key assumptions referenced in
these rating methodologies, key model inputs used by Moody's in
its analysis, such as par, weighted average rating factor,
Moody's Asset Correlation, and weighted average recovery rate,
may be different from the trustee's reported numbers. In particular,
rating assumptions for all publicly rated corporate credits in the underlying
portfolio have been adjusted for "Review for Possible Downgrade",
"Review for Possible Upgrade", or "Negative Outlook".
The transaction's portfolio was modeled, according to our rating
approach, using CDOROM v.2.8 to develop the loss distribution
from which the Moody's Asset Correlation parameter was obtained.
This parameter was then used as an input in a cash flow model using CDOEdge.
CDOROM v.2.8 is available on moodys.com under Products
and Solutions -- Analytical models, upon return of
a signed free license agreement.
Other methodologies and factors that may have been considered in the process
of rating this issue can also be found on moodys.com.
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 six months.
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.
Asst Vice President - Analyst
Structured Finance Group
Moody's Investors Service
Senior Vice President
Structured Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's downgrades the ratings of TRUP CDO notes from Soloso CDO 2005-1, Ltd.
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