Approximately $46.5 million original issuance amount of Notes affected
New York, May 07, 2010 -- Moody's Investors Service announced today that it has downgraded the ratings
of three classes of notes issued by STACK 2004-1, LTD.
The notes affected by today's rating action are as follows:
U.S. $ 27,000,000 Class B Floating Rate
Term Notes, due May 10, 2039, Downgraded to B3;
previously on September 25, 2009 Downgraded to Baa3;
U.S $ 8,000,000 Class C Floating Rate Deferrable
Interest Term Notes, due May 10, 2039, Downgraded to
Ca; previously on September 25, 2009 Downgraded to Caa1;
U.S. $ 11,500,000 Class D Floating Rate
Deferrable Interest Term Notes, due May 10, 2039 (current
balance of $9,133,204), Downgraded to C;
previously on September 25, 2009 Downgraded to Ca.
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 originated
between 2002 and 2004. RMBS comprise approximately 49% of
the underlying portfolio, the ratings of the majority of which are
currently on review for possible downgrade by Moody's.
According to Moody's, the rating downgrade actions today are the
result of deterioration in the credit quality of the underlying 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),
an increase in the dollar amount of defaulted securities, failure
of the coverage tests, and number of assets that are currently on
review for possible downgrade. In particular, the weighted
average rating factor, as reported by the trustee, has increased
from 742 in September 2009 to 939 in April 2010. During the same
time, defaulted securities increased from $16.8 million
to $21.1 million, the Class A/B overcollateralization
ratio decreased from 122.30% to 117.54%,
and the Class C overcollateralization ratio decreased from 109.16%
to 103.77%. In addition, the trustee reports
that the transaction is currently failing the Class D interest coverage
and Class D overcollateralization tests. Also, in April 2010,
approximately $36.6 million of pre-2005 RMBS in the
underlying portfolio were placed on review for possible downgrade as a
result of Moody's updated loss projections.
Moody's explained that in arriving at the rating actions 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 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 rated securities were stressed
by four notches, Aa rated securities by six notches, and A
or Baa rated securities by nine notches. Pre-2005 Option-ARM
securities currently rated Aaa were stressed by two notches, Aa
and A by six notches, and Baa by nine notches.
For pre-2005 subprime, Aaa and Aa rated securities were stressed
by two notches, A rated securities were stressed by six notches,
and Baa rated securities were stressed by nine notches.
All subprime, Alt-A and Option-ARM RMBS securities
which originated prior to 2005, are currently rated Ba or below,
and are also currently on review for possible downgrade have been stressed
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
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)
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. 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, 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 decision.
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. 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.
Senior Vice President
Structured Finance Group
Moody's Investors Service
Moody's downgrades the ratings of three classes of Notes issued by STACK 2004-1, LTD an ABS CDO
Structured Finance Group
Moody's Investors Service