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Announcement:

Moody's sees no negative rating impact on Double Diamond sponsored resort lot loan ABS from amendments

27 Oct 2011

New York, October 27, 2011 -- Moody's Investors Service (Moody's) stated today that its rating on the resort lot loan backed ABS notes (Notes) issued by Double Diamond Financial III, LLC (DDF III) is not being downgraded, withdrawn or placed under review for possible downgrade due to amendments to the servicing agreement, trust indenture and the sale and contribution agreement effected October 27, 2011. The amendments facilitate a one-time contribution of collateral and cash in replacement of loans that were incorrectly removed from the deal. As a result, the Notes will be secured by a slightly larger collateral pool than originally required. The amendments also require the written consent of the trustee (acting with the written consent of the majority noteholders) for any future release of collateral.

In assessing the potential impact on the ratings of the notes, reviewed the amendments and the composition of the replacement collateral. From the time of the deal closing until August 12, 2011, 88 loans with a total balance of $3,434,923 were removed from the pool by the servicer. Up until now, no substitute loans had been replaced in the pool. The servicer had identified 80 replacement loans with a total balance of $4,837,338. Of this total, 23 of these loans, for a balance of $2,200,436, constitute boot collateral for the deal and will not be included in the aggregate mortgage balance for purposes of monthly determination date calculations. The remainder (57 loans with a total balance of $2,636,902), along with $798,021 in cash, has replaced the collateral that was mistakenly removed from the deal. Moody's concluded that the proposed amendments to the documents and the replacement collateral does not have an adverse effect on the credit quality of the rated securities.

Moody's ratings address only the credit risks associated with the transaction. Other non-credit risks have not been addressed, but may have significant effect on yield and/or other payments to investors. This press release should not be taken to imply that there will be no adverse consequence for investors since in some cases such consequences will not impact the rating.

PRINCIPAL METHODOLOGY

The credit analysis used for this pool is largely similar to that of other amortizing assets, particularly Timeshare loans. Lot sale prices reflect intangibles relating to the resort as a whole. While the underlying loans in this securitization are secured by real property in the form of residential lots, there is expected to be a significant link between the recovery rate on the defaulted loans and the financial well being of the sponsor. Similar to timeshares, recovery is likely to rely on the remarketing efforts of the sponsor. Additionally, the resale price on the lot is largely dependent upon the sponsors' ability to maintain the resorts. However, unlike timeshare loans, the collateral here is actual deeded land consisting of buildable lots with access to water, sewer and electric. Furthermore, the resorts are mostly complete and the maintenance cost of amenities -- especially golf- are funded via lot owner association dues. As such, we attributed less sponsor linkage to the collateral value, and therefore, somewhat higher recoveries than would be the case for a similarly sized timeshare sponsor. Moody's considered the expected gross loss rate for this pool and assumed a 15% recovery rate on defaulted loans in determining the A2 volatility proxy. The expected loss and A2 volatility proxy reflect our separated assessment of gross losses and recoveries.

Since this is a granular pool where no single underlying obligor would likely affect the overall pool performance significantly, an actuarial approach is used in determining expected gross losses. This credit analysis uses historical summary statistical data regarding similar static pools of receivables. The expected gross losses and the volatility around those losses are analyzed in the context of the capital structure's ability to insulate notes from defaulted contracts in determining Moody's rating.

The gross loss analysis is based primarily on an analysis of the collateral's historical performance -- including static pool performance for annual originations and managed portfolio performance -- adjusted for seasoning and to reflect differences between the economic conditions underlying the historical performance and our expectation of future economic conditions. Managed portfolio performance data tracks the delinquencies and gross losses that occur in each period as a percentage of that period's loan balance of the sponsors' overall portfolio of loans. Static pool data shows the ratio of cumulative gross losses to original loan balance for a static pool of assets that was originated in a given year. The mechanics of the static pool analysis are essentially the same method applied to most other major ABS asset classes. A detailed discussion of the analytical technique can be found in "Moody's Approach to Rating Securities Backed by Equipment Leases and Loans," April 2007, which can be found at www.moodys.com in the Credit Policy & Methodologies directory, in the Ratings Methodologies subdirectory.

Moody's considered a variety of factors in assessing variability around the expected cumulative gross loss. These included: historical performance data (including volatility of performance and performance during distressed economic periods), pool characteristics, and servicer capabilities and financial strength. Other similar asset classes were compared to this pool in order to arrive at the total required credit enhancement required for this transaction to be consistent with the rating A2.

Credit enhancement in the structure includes overcollateralization, excess spread, and a reserve account. The deal structure also includes a delinquency trigger and a cap on annual payments to the equity class. The level of credit enhancement was compared to the expected gross defaults and expected recovery rate adjusted for loss volatility. A variety of scenarios were considered adjusting loss timing, collateral prepayment, and recovery rates. The magnitude and timing of the losses under these various scenarios are compared to the credit enhancement available to test breakeven loss levels.

Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating Methodologies sub-directory on Moody's website.

Michael Labuskes
Asst Vice President - 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

Michael McDermitt
VP - Senior Credit Officer
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 sees no negative rating impact on Double Diamond sponsored resort lot loan ABS from amendments
No Related Data.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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