USD $59.2 million of debt securities affected
New York, April 27, 2012 -- Moody's Investors Service announced today that it has downgraded the ratings
of the following notes issued by STACK 2004-1, LTD.
U.S.$240,000,000 Class A Floating Rate
Notes Due May 10, 2039 (current outstanding balance of $23,775,033.74),
Downgraded to Baa1 (sf); previously on September 25, 2009 Downgraded
to A2 (sf);
U.S.$27,000,000 Class B Floating Rate
Notes Due May 10, 2039 (current outstanding balance of $27,286,385.41),
Downgraded to Caa3 (sf); previously on July 13, 2011 Downgraded
to Caa2 (sf);
U.S.$8,000,000 Class C Floating Rate
Deferrable Notes Due May 10, 2039 (current outstanding balance of
$8,169,603.59), Downgraded to C (sf);
previously on May 7, 2010 Downgraded to Ca (sf).
RATINGS RATIONALE
According to Moody's, the rating actions are the result of
deterioration in the credit quality of the portfolio, measured by
the increased defaults and declining coverage tests. Since the
last rating action, defaults increased from $37.22
million to $41.97 million. Also, according
to the trustee report dated February 2012, the Class A/B,
Class C and Class D overcollateralization ratios have declined to 79.50%,
68.48% and 54.67%, respectively,
from the June 2011 levels of 90.33%, 78.53%
and 59.00%, respectively. Moody's also noted
that the Class A/B IC, Class B IC and Class C IC tests are failing
and due to the shortfall in interest proceeds available to pay interest
on the Class A Notes, principal proceeds are currently being,
and are expected to continue to be, diverted to pay interest on
the Class A Notes and perhaps the hedge counterparty before being used
to pay down principal on the Class A Notes.
According to Moody's, the rating downgrade today is also the result
of the Event of Default under section 5.1(i) declared by the Trustee
on April 8, 2011. The Event of Default was declared because
the Class A/B Overcollateralization Ratio was less than 100%.
On July 20, 2011 the note holders voted to accelerate the transaction.
As provided in Article V of the Indenture during the occurrence and continuance
of an Event of Default, certain parties to the transaction may be
entitled to direct the Trustee to take particular actions with respect
to the Collateral and the Notes the sale and liquidation of the assets.
The severity of losses of certain tranches may be different depending
on the timing and outcome of a liquidation.
STACK 2004-1, LTD. is a collateralized debt obligation
issuance backed primarily by a portfolio of residential mortgage-backed
securities (RMBS) and commercial mortgage-backed securities (CMBS)
originated between 2002 and 2004.
The principal methodology used in this rating was "Moody's Approach to
Rating SF CDOs" published in November 2010. Please see the Credit
Policy page on www.moodys.com for a copy of this methodology.
Moody's applied the Monte Carlo simulation framework within CDOROMv2.8
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 correlation between recovery values. Together,
the simulated defaults and recoveries across each of the Monte Carlo scenarios
define the loss distribution for the reference pool.
Once the loss distribution for the collateral has been calculated,
each collateral loss scenario derived through the CDOROM loss distribution
is associated with the interest and principal received by the rated liability
classes via the CDOEdge cash-flow model . The cash flow
model takes into account the following: collateral cash flows,
the transaction covenants, the priority of payments (waterfall)
for interest and principal proceeds received from portfolio assets,
reinvestment assumptions, the timing of defaults, interest-rate
scenarios and foreign exchange risk (if present). 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 present values are calculated
using the promised tranche coupon rate as the discount rate. For
floating rate tranches, the discount rate is based on the promised
spread over Libor and the assumed Libor scenario.
Moody's Caa rated assets notched up by 2 rating notches
Class A: 0
Class B: +2
Class C: 0
Class D: 0
Moody's Caa rated assets notched down by 2 rating notches
Class A: 0
Class B: -2
Class C: 0
Class D: 0
Moody's notes that this transaction is subject to a high level of
macroeconomic uncertainty, as evidenced by uncertainties of credit
conditions in the general economy. Additionally, there is
a large concentration of tranches from CLO and CBO transactions which
have not yet begun to repay principal.
Sources of additional performance uncertainties are described below:
1) Deleveraging: The main source of uncertainty in this transaction
is whether delevering from RMBS, CMBS and ABS collateral will continue
and at what pace.
2) Recovery of defaulted assets: Market value fluctuations in defaulted
assets reported by the trustee and those assumed to be defaulted by Moody's
may create volatility in the deal's overcollateralization levels.
Further information on Moody's analysis of this transaction is available
on www.moodys.com.
REGULATORY DISCLOSURES
The Global Scale Credit Ratings on this press release that are issued
by one of Moody's affiliates outside the EU are endorsed by Moody's
Investors Service Ltd., One Canada Square, Canary Wharf,
London E 14 5FA, UK, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that has issued a particular Credit Rating is available on www.moodys.com.
For ratings issued on a program, series or category/class of debt,
this announcement provides relevant regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides relevant regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides relevant regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
Information sources used to prepare the rating are the following:
parties involved in the ratings, public information, and confidential
and proprietary Moody's Investors Service information.
Moody's did not receive or take into account a third-party
assessment on the due diligence performed regarding the underlying assets
or financial instruments related to the monitoring of this transaction
in the past six months.
Moody's considers the quality of information available on the rated
entity, obligation or credit satisfactory for the purposes of issuing
a rating.
Moody's adopts all necessary measures so that the information it
uses in assigning a 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 the ratings disclosure page on www.moodys.com
for general disclosure on potential conflicts of interests.
Please see the ratings disclosure page on www.moodys.com
for information on (A) MCO's major shareholders (above 5%) and
for (B) further information regarding certain affiliations that may exist
between directors of MCO and rated entities as well as (C) the names of
entities that hold ratings from MIS that have also publicly reported to
the SEC an ownership interest in MCO of more than 5%. A
member of the board of directors of this rated entity may also be a member
of the board of directors of a shareholder of Moody's Corporation;
however, Moody's has not independently verified this matter.
Please see Moody's Rating Symbols and Definitions on the Rating Process
page on www.moodys.com for further information on the meaning
of each rating category and the definition of default and recovery.
Please see ratings tab on the issuer/entity page on www.moodys.com
for the last rating action and the rating history.
The date on which some ratings were first released goes back to a time
before Moody's ratings were fully digitized and accurate data may not
be available. Consequently, Moody's 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 www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Andrew Worthington
Analyst
Structured Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Rodrigo Araya
Senior Vice President
Structured Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's downgrades the ratings of notes issued by STACK 2004-1, LTD., a SF CDO
