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Announcement:

Moody's places certain structured settlement ABS notes sponsored by J.G. Wentworth under review for possible upgrade

24 Nov 2010

Approximately $249 million of asset-backed securities affected.

New York, November 24, 2010 -- Moody's Investors Service has placed on review for possible upgrade 4 classes of structured settlement-backed notes from two different transactions issued by 321 Henderson Receivables I LLC ("Issuer"). The sponsor and servicer of the transactions is J.G. Wentworth. The transactions involve the securitization of litigation claimants' rights to receive future scheduled payments under settlement agreements (commonly known as structured settlements). The majority of the assets of the pools are court-ordered receivables, the payors under which are primarily insurance companies.

The complete rating actions are as follows:

Issuer: 321 Henderson Receivables I LLC

Series 2004-A, Class A-1 Notes, A1 (sf) placed on review for possible upgrade; previously on April 8, 2009 upgraded to A1 (sf)

Series 2004-A, Class A-2 Notes, A2 (sf) placed on review for possible upgrade; previously on April 8, 2009 A2 (sf) rating confirmed

Series 2005-1, Class A-1 Notes, A2 (sf) placed under review for possible upgrade; previously on April 8, 2009 A2 (sf) rating confirmed

Series 2005-1, Class A-2 Notes, A3 (sf) placed under review for possible upgrade; previously on April 8, 2009 downgraded to A3 (sf)

RATINGS RATIONALE

The primary rationale is the increase in credit enhancement in these two transactions since our last rating action on April 8, 2009. Specifically, credit enhancement provided by subordinate notes and overcollateralization, expressed as a percentage of the remaining pool balance, has increased to 11.19% as of the November 2010 distribution date, up from 9.54% in March 2009, for the Series 2004-A transaction. Similarly, credit enhancement for the Series 2005-1 notes has grown to 9.08% as of November 2010, as compared to the March 2009 credit enhancement of 8.00%. Moody's notes that the enhancement in both transactions is significantly more than that of other 321 Henderson transactions of similar vintage and ratings.

During its review period, Moody's will fine-tune its analysis of the impact of the increase in credit enhancement on the notes.

PRINCIPAL METHODOLOGY

In assigning credit ratings on the Notes, Moody's relied on qualitative and quantitative analysis described in the paragraphs that follow.

Qualitative Analysis

Our qualitative analysis focused primarily on evaluating (i) whether the servicing arrangement adequately reduces the likelihood and extent of a servicing disruption; (ii) cash management, and (iii) the extent of payment diversion risk.

J.G. Wentworth Management Company ("Wentworth") is the Master Servicer in these transactions. In this role, Wentworth is responsible for billing, servicing, administering, and making collections on the securitized receivables. Wentworth is also responsible for directing the Administrative Agent, which is Deutsche Bank Trust Company Americas (DBTCA), to make monthly distributions according to the priority of payments. Wentworth has the experience and expertise to perform the day to day servicing of the collateral. In addition, Portfolio Financial Servicing Company (PFSC) acts as Backup Servicer in the deal. PFSC's duties as a back-up servicer, including maintaining daily parallel postings and posting reconciliation, should ensure that it is ready to assume the servicing responsibilities within a relatively short period of time, if needed.

As for the cash management, all obligors are directed to deposit payments into a lockbox account which is in the name and control of DBTCA as Collateral Trustee for the two transactions. Each day, all collections on deposit in the lockboxes will be transferred to either the Master Collection Account (for the settlements) or the Annuity Collection Account (for the annuities), both in the name of the Collateral Trustee. It should be noted that each collection account may include payment relating to other J.G. Wentworth-sponsored transactions. Within two business days, the Master Servicer is obligated to transfer the collections relating to the Series 2004-A and Series 2005-1 securitized receivables from the collection accounts to the Series 2004-A and Series 2005-1 collection accounts. We think that the cash management arrangement is consistent with the ratings of the notes.

With respect to payment diversion risk, more than 95% of the discounted balance of the securitized receivables in each trust at the time of closing consisted of court-ordered structured settlements. Hence, the risk of claimants diverting payments from the securitized assets should be low. Court-ordered structured settlements consist of receivables created after the enactment of the Victims of Terrorism Tax Relief Act of 2001 (the Act). The Act stipulates that the sale of a structured settlement receivable must be subject to a court order under which the structured settlement obligors are directed by court to remit payments to a given party (i.e. J.G. Wentworth in this case).

Quantitative Analysis

Moody's used a Monte Carlo analysis to simulate different scenarios of structured settlement pool performance. From these scenarios, 10,000 sets of monthly cash-flows are obtained. These cash-flows are then used to pay down the Notes and to observe the probabilities and severities of defaults for the different classes of Notes. Specifically, the IRR of the simulated ABS cash flows is calculated for each iteration, and then compared to the promised IRR (coupon) to measure the reduction in IRR. If there is a principal loss, this loss is noted and the amount is logged. After completing thousands of iterations, an average reduction in IRR, an average frequency of loss and an average loss (expected loss) is calculated. From these results model-indicated ratings are determined using the appropriate Moody's idealized reference tables. Of these measures, the primary driver to the rating outcome is the IRR reduction. It should be noted that for simplicity, the model ignores interest defaults. Despite the very long term of settlements, due to the structure of the transactions cash flow is very plentiful. As such interest defaults would rarely occur except in conjunction with a principal default.

The Monte Carlo simulation model use asset level information about the pool of securitized receivables including the credit quality of the obligors. The model relies on identifying key variables important to the performance of the assets and on assigning probability distributions for these variables. The key variables include the probability of default for the obligors making payments under the securitized receivables, the recovery rate on the receivables upon the default of an obligor, the correlation between obligors' defaults, and losses. In defining the parameters for the variables, Moody's relied on a combination of historical data, market knowledge on current and future trends in the insurance industry and the sub-servicer's own experience.

The following is a more detailed explanation of the key variables and our assumptions for each: (i) the obligor mix in this deal consists of insurance companies (primarily life insurance companies) which are typically highly rated; for probability of default assumption Moody's used the actual credit ratings for the obligor if available; for obligors for which Moody's credit rating was not available, a probability of default consistent with a Ba rating level was assumed; obligors which are part of the same insurance group were treated as a single obligor; (ii) for recovery assumption, the assumed distributions were centered at around 70% for companies that are rated investment grade and around 50% for non investment grade companies; (iii) for correlation we assumed that each individual company's default is correlated to a single industry random variable (i.e. there is no consideration for cross correlation among obligors in the pool); the deal was evaluated under different correlation thresholds of 50%, 75% and 100%; (iv) losses were assumed to be less than 2%. Though historically losses on court ordered structured settlements have been very low, losses for a specific transaction may be higher than the historical levels. Losses may stem from bankruptcy of claimant, fraud, administrative error by the originator or obligor or other reasons. The performance expectations for a given variable indicate Moody's forward-looking view of the likely range of performance over the medium term. From time to time, Moody's may, if warranted, change these expectations.

Performance that falls outside the given range may indicate that the collateral's credit quality is stronger or weaker than Moody's had anticipated when the related securities were initially rated. Even so, a deviation from the expected range will not necessarily result in a rating action nor does performance within expectations preclude such actions. The decision to take (or not take) a rating action is dependent on an assessment of a range of factors including, but not exclusively, the performance metrics.

Other methodologies and factors that may have been considered in the process of rating this issue can be found at www.moodys.com in the Ratings Methodologies subdirectory within the Rating Methodologies and Performance directory.

Further information on Moody's analysis of these transactions is available on www.moodys.com. 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.

New York
Michael McDermitt
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Gregory J. Gemson
Analyst
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.

Moody's places certain structured settlement ABS notes sponsored by J.G. Wentworth under review for possible upgrade
No Related Data.
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