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Rating Action:

Moody's takes actions on Bayview's small business ABS

01 Feb 2017

Approximately $341.1 million of asset-backed securities affected

New York, February 01, 2017 -- Moody's Investors Service has downgraded the ratings on twelve tranches from three transactions of small business loans issued by Bayview Commercial Asset Trust, and confirmed the ratings of two tranches from two transactions. The rating actions were taken on tranches of transactions where Moody's found that the maturity dates of a number of loans underlying the four transactions were modified to dates beyond the maturity dates of the rated tranches. The loans are secured primarily by small commercial real estate properties in the U.S. owned by small businesses.

Complete rating actions are as follows:

Issuer: Bayview Commercial Asset Trust 2007-3

Cl. A-1, Downgraded to Ba1 (sf); previously on Nov 22, 2016 A3 (sf) Placed Under Review for Possible Downgrade

Cl. A-2, Downgraded to Ba3 (sf); previously on Nov 22, 2016 Ba2 (sf) Placed Under Review for Possible Downgrade

Cl. M-1, Downgraded to B3 (sf); previously on Nov 22, 2016 B2 (sf) Placed Under Review for Possible Downgrade

Cl. M-2, Downgraded to Caa1 (sf); previously on Nov 22, 2016 B3 (sf) Placed Under Review for Possible Downgrade

Cl. M-3, Downgraded to Caa2 (sf); previously on Nov 22, 2016 Caa1 (sf) Placed Under Review for Possible Downgrade

Issuer: Bayview Commercial Asset Trust 2007-6

Cl. A-4A, Confirmed at Caa3 (sf); previously on Nov 22, 2016 Caa3 (sf) Placed Under Review for Possible Downgrade

Issuer: Bayview Commercial Asset Trust 2008-3

Cl. A-4, Downgraded to B2 (sf); previously on Nov 22, 2016 B1 (sf) Placed Under Review for Possible Downgrade

Cl. M-1, Downgraded to Caa2 (sf); previously on Nov 22, 2016 Downgraded to Caa1 (sf) and Placed Under Review for Possible Downgrade

Cl. M-2, Downgraded to Ca (sf); previously on Nov 22, 2016 Downgraded to Caa3 (sf) and Placed Under Review for Possible Downgrade

Issuer: Bayview Commercial Asset Trust 2008-4

Cl. A-4, Confirmed at Ba1 (sf); previously on Nov 22, 2016 Ba1 (sf) Placed Under Review for Possible Downgrade

Cl. M-1, Downgraded to B1 (sf); previously on Nov 22, 2016 Ba3 (sf) Placed Under Review for Possible Downgrade

Cl. M-2, Downgraded to B3 (sf); previously on Nov 22, 2016 B2 (sf) Placed Under Review for Possible Downgrade

Cl. M-3, Downgraded to Caa2 (sf); previously on Nov 22, 2016 Downgraded to Caa1 (sf) and Placed Under Review for Possible Downgrade

Cl. M-4, Downgraded to Ca (sf); previously on Nov 22, 2016 Downgraded to Caa3 (sf) and Placed Under Review for Possible Downgrade

RATINGS RATIONALE

The downgrade actions on the 2007-3, 2008-3, and 2008-4 transactions reflect that between roughly 30% and in excess of 60% of the outstanding pool balances for these transactions consists of loans that were modified to have maturity dates in excess of the tranches' maturity dates. As a result, there is the potential for between approximately 5% and 20% of the current collateral pool for each transaction to be outstanding at the tranches' maturity dates, although this amount would be reduced by prepayments or higher than expected losses. The Cl. A-1 certificate of the 2007-3 transaction is particularly vulnerable to this issue given the transaction's pro rata pay structure coupled with the high balance of loans (in excess of 60% of the outstanding pool balance) that have been extended past the transaction's final maturity date. These factors may cause some of the Cl. A-1 certificate balance to remain outstanding as of its final maturity date. The Cl. A-1 certificate was downgraded to Ba1(sf) from A3(sf) as a result.

Remaining tranches that were on review due to loan maturity date modifications past the final transaction maturity dates, including those from the sequential pay transactions (2007-6, 2008-3, and 2008-4), were confirmed or only incurred one-notch downgrades, reflecting in part that these tranches already had non-investment grade ratings. In the 2007-6, 2008-3, and 2008-4 transactions, loans extended past the transactions' final maturity dates were approximately 40%, 30%, and 30% of the respective outstanding pool balances.

In general, for the Bayview small business ABS collateral pools, delinquencies of 60 days or more, including loans in foreclosure and REO, have improved with the average deal experiencing a decrease in delinquencies of nearly 4% on an absolute basis over the past year for the affected transactions. Delinquencies of 60 days or more ranged from 9% to 16% of the outstanding pool balances as of the January 2017 distribution date, versus 12% to 20% as of the January 2016 distribution date. Average severities are still high in the 70% to 80% range.

A key factor in Moody's loss projections is its evaluation and treatment of modified loans. Bayview Loan Servicing has modified approximately 50% to 65% of the loan balance classified as current as of the January 2017 distribution date in the deals affected by today's rating actions. Most of these loans were delinquent before modification and are therefore more likely to become delinquent than non-modified loans in the future. Moody's evaluation of loan-level data indicates that current, modified loans are two to three times as likely to become defaulted compared to current, non-modified loans. Moody's accounted for this likelihood in its loss projection methodology described in the "Methodology" section below.

The current ratings reflect the likelihood of security holders recovering outstanding interest shortfalls for the bonds on which they exist. Even though available credit enhancement to a tranche may be high, recovery of interest shortfalls may take several years for rated tranches with outstanding shortfalls. Transactions in this rating action that continue to be impacted by interest shortfalls include Bayview 2007-6, 2008-3 and 2008-4.

METHODOLOGY

The principal methodology used in these ratings was "Moody's Global Approach to Rating SME Balance Sheet Securitizations" published in October 2015. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Moody's evaluated the sufficiency of credit enhancement by first analyzing the loans to determine an expected remaining net loss for each collateral pool. Moody's compared these expected net losses with the available credit enhancement, consisting of overcollateralization, subordination, excess spread, and a reserve account if any. For the lower subordinate tranches, Moody's identified relatively near term future write-downs by examining the expected losses from loans in foreclosure and REO in relation to a tranche's available credit enhancement.

To forecast expected losses for the Bayview small business ABS collateral pools, Moody's evaluated each pool according to the delinquency and modification status of the underlying loans, applying different roll rates to default to loans according to each status. In order to determine the roll rates to default, Moody's assessed historical roll rate behavior according to their delinquency status.

This approach leads to a wide range of lifetime loan default rates depending on vintage, modification status and delinquency status. For modified current loans, the remaining lifetime default rate assumption was 20%, more than two times the remaining lifetime default rate estimate of 8% for non-modified current loans. For delinquent loans, the lifetime default rates range from 30% to 75%. For loans in foreclosure or REO, the lifetime default rates are roughly 70% to 100%.

For loss severities, Moody's generally applied 75% severities for both modified and non-modified loans.

Factors that would lead to an upgrade or downgrade of the ratings:

Up

Levels of credit protection that are higher than necessary to protect investors against expected losses could drive the ratings up. Losses below Moody's expectations as a result of a decrease in seriously delinquent loans or lower severities than expected on liquidated loans. Reimbursement of interest shortfalls more rapidly than anticipated when applicable. For loans with maturities in excess of the transaction maturity date, levels of prepayments above expectations, or the further modification of those loans such that they mature prior to the transaction maturity date for their respective transactions.

Down

Levels of credit protection that are insufficient to protect investors against expected losses could drive the ratings down. Losses above Moody's expectations as a result of an increase in seriously delinquent loans and higher severities than expected on liquidated loans. Reimbursement of interest shortfalls slower than anticipated when applicable. For loans with maturities past the transaction maturity dates, levels of prepayments above expectations. For loans with maturities in excess of the transaction maturity date, levels of prepayments below expectations, or the modification of additional loans such that they mature after the transaction maturity date for their respective transactions.

Other methodologies and factors that Moody's may have considered in the process of rating these transactions appear on Moody's website. More information on Moody's analysis of this transaction is available at www.moodys.com.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions of the disclosure form.

The analysis includes an assessment of collateral characteristics and performance to determine the expected collateral loss or a range of expected collateral losses or cash flows to the rated instruments. As a second step, Moody's estimates expected collateral losses or cash flows using a quantitative tool that takes into account credit enhancement, loss allocation and other structural features, to derive the expected loss for each rated instrument.

Moody's quantitative analysis entails an evaluation of scenarios that stress factors contributing to sensitivity of ratings and take into account the likelihood of severe collateral losses or impaired cash flows.

For ratings issued on a program, series or category/class of debt, this announcement provides certain 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 certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain 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.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

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.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Thomas Meehan
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

Amelia (Amy) Tobey
Senior Vice President/Manager
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

No Related Data.
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