Approximately USD 561 million of debt securities affected
New York, December 08, 2010 -- Moody's Investors Service announced today that it has downgraded the ratings
on the following notes issued by Taberna Preferred Funding II, Ltd.
US $400,000,000 Class A-1-A First Priority
Delayed Draw Senior Secured Floating Rate Notes Due 2035, (current
balance of $341,327,752), Downgraded to Caa1
(sf); previously on April 9, 2009 Downgraded to B2 (sf);
US $106,500,000 Class A-1-B First Priority
Senior Secured Floating Rate Notes Due 2035 (current balance of $90,878,512),
Downgraded to Caa1 (sf); previously on April 9, 2009 Downgraded
to B2 (sf);
US $10,000,000 Class A-1-C First Priority
Senior Secured Fixed/Floating Rate Notes Due 2035 (current balance of
$8,533,194), Downgraded to Caa1 (sf); previously
on April 9, 2009 Downgraded to B2 (sf);
US $120,500,000 Class B Third Priority Secured Floating
Rate Notes Due 2035, Downgraded to C (sf); previously on April
9, 2009 Downgraded to Ca (sf).
Taberna Preferred Funding II, Ltd., issued on June
28, 2005, is a collateral debt obligation backed by a portfolio
of CMBS, CRE CDOs and REIT trust preferred securities (the 'TRUP
CDO'). On April 9, 2009, the last rating action date,
Moody's downgraded four classes of notes, which were the result
of the application of revised and updated key modeling assumptions,
as well as the deterioration in the credit quality of the transaction's
Moody's indicated that the downgrade action on the notes are primarily
the result of increase of the assumed defaulted amount and Weighted Average
Rating Factor (WARF) of the pool. The assumed defaulted amount
now totals $319 million (37% of the portfolio). All
the assumed defaulted assets are carried at zero recovery in our analysis.
The remaining assets in the portfolio have also suffered credit deterioration,
as indicated by the WARF which increased to 3555 from 2679 as of the last
rating action. The current model WARF accounts for a credit estimate
stress, described in Moody's Rating Methodology "Updated Approach
to the Usage of Credit Estimates in rated Transactions", October
The par loss due to the increase in the assumed defaulted amount has resulted
in loss of overcollateralization and interest coverage for the affected
tranches. This has led to an increase in the expected losses since
the last rating action. As of the latest trustee report dated October
31, 2010, the Class A/B Overcollateralization Test is reported
at 98.78% and the Class A/B Interest Coverage Test at 70.48%,
versus trustee reported levels used in the last rating action of 105.66%
and 118.90% , respectively, from the report
dated as of February 28, 2009.
The rating action also takes into consideration that the transaction triggered
an Event of Default on November 12, 2009 arising from a default
in the payment of interest due on the Class A-1 Notes, Class
A-2 Notes and Class B Notes. The trustee also issued a notice,
dated as of December 7, 2009 that a majority of the Controlling
Class directed the Trustee to declare the principal of all of the Notes
to be immediately due and payable. The Event of Default is continuing.
In Moody's opinion, most U.S. REITs and REOCs have
begun to show signs of recovery and the credit fundamentals are stabilizing
in the sector. We also expect relative rating stability for U.S.
CMBS in 2011 as property markets begin to recover.
In our analysis, we assume that the WAL of the portfolio is approximately
The portfolio of this CDO is composed of CMBS securities and trust preferred
securities issued by REITs that are generally not publicly rated by Moody's.
To evaluate their credit quality, Moody's derives credit scores
for these non-publicly rated assets and evaluates the sensitivity
of the rated transactions to their volatility, as described in Moody's
Rating Methodology "Updated Approach to the Usage of Credit Estimates
in Rated Transactions", October 2009. The effect of the stress
testing of these credit scores varies between one and three notches,
depending on the total amount and relative size of these securities in
the collateral pool.
Moody's performed a number of sensitivity analyses of the results to some
of the key factors driving the ratings. The sensitivity of the
model results to increases and decreases in the WARF (representing a slight
improvement and a slight deterioration of the credit quality of the collateral
pool) was examined. If WARF is increased by 170 points from the
base case of 3555, the model results in an expected loss that is
one notch worse than the result of the base case for Class A-1
Notes. If the WARF is decreased by 780 points, expected losses
are one notch better than the base case results. Additionally,
the effect of using loss distribution generated from CDOROM was also tested
resulting in an expected loss that did not create any rating movement
for the rated notes.
In addition to the quantitative factors that are explicitly modeled,
qualitative factors are part of rating committee considerations.
Moody's considers as well the structural protections in this transaction,
the recent deal performance in the current market conditions, 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.
The principal methodologies used in this rating were "Moody's Approach
to Rating U.S. REIT CDOs" published in April 2010,
and "Updated Approach to the Usage of Credit Estimates in Rated Transactions"
published in October 2009.
Other methodologies and factors that may have been considered in the process
of rating this issuer can also be found on Moody's website.
Due to the impact of revised and updated key assumptions referenced in
these rating methodologies, key model inputs used by Moody's in
its analysis, such as par, WARF, Moody's Asset Correlation,
and weighted average recovery rate, may be different from the trustee's
reported numbers. In particular, rating assumptions for all
publicly rated corporate credits in the underlying portfolio have been
adjusted for "Review for Possible Downgrade", "Review for Possible
Upgrade", or "Negative Outlook".
The transaction's portfolio was modeled, according to our rating
approach, using CDOROM v.2.6 to develop the default
distribution from which the Moody's Asset Correlation parameter was obtained.
This parameter was then used as an input in a cash flow model using CDOEdge.
CDOROM v.2.6 is available on moodys.com under Products
and Solutions -- Analytical models, upon return of
a signed free license agreement.
Moody's Investors Service did not receive or take into account a third
party due diligence report on the underlying assets or financial instruments
related to the monitoring of this transaction in the past six months.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, public information, confidential
and proprietary Moody's Investors Service information, and confidential
and proprietary Moody's Analytics' information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
Further information on Moody's analysis of this transaction 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 web site, at www.moodys.com/SFQuickCheck.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit 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 ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service 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 the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Structured Finance Group
Moody's Investors Service
Senior Vice President
Structured Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's takes rating action on notes issued by Taberna Preferred Funding II, Ltd., a REIT TRUP CDO
250 Greenwich Street
New York, NY 10007