Approximately $1.4 billion of asset-backed securities affected.
New York, March 13, 2011 -- Moody's Investors Service has downgraded 42 tranches issued in five securitizations
of small business loans and one tranche in one net interest margin securities
transaction. Additionally, we confirmed seven tranches issued
in two securitizations of small business loans and three tranches in three
net interest margin securities transactions. The deals are serviced
by Aurora Bank FSB, formerly known as Lehman Brothers Bank,
FSB. The small business loans are secured primarily by commercial
real estate.
RATING RATIONALE
The downgrades are due to a significant rise in 60 days or more delinquencies,
including amounts in foreclosure and REO, from a range of 10%-13%
of the current pool balance in February 2009 to 20%-25%
as of the February 2011 distribution date. In contrast, the
2005-1 deal experienced an increase in 60 days or more delinquencies
from 4% to 8% of the current pool balance and has incurred
cumulative net losses of approximately 1% of the original pool
balance as of the February 2011 distribution date.
The methodology used in these rating actions included projections of the
expected losses and analysis of the available credit enhancement.
Because typical small business securitizations have either a long-dated
or no hard charge-off policy, they may build up significant
delinquency pipelines. In projecting expected losses, Moody's
used representative delinquency roll rates and an assumed loss severity
of 60%. The projected lifetime net losses are 4.50%,
19.00%, 23.50%, 20.75%,
23.25%, and 22.50% of the original pool
balance for the 2005-1, 2006-2, 2006-3,
2007-1, 2007-2, and 2007-3 deals,
respectively. The Aaa volatility proxies are 30%,
46%, 48%, 48%, 48%,
and 46% for the 2005-1, 2006-2, 2006-3,
2007-1, 2007-2, and 2007-3 deals,
respectively. Determining factors for the Aaa volatility proxies
were the credit quality of the collateral pool, the historical variability
in losses experienced by the issuer, the servicer quality as well
as the industrial, geographical and obligor concentrations.
The methodology used for the net interest margin securities included evaluating
the likelihood of paying interest and principal from excess cash and prepayment
fees from the respective underlying small business loan transaction.
The potential cash inflow was considered in relation to accumulated interest
shortfalls and reserve account deficits.
Primary sources of assumption uncertainty are the general economic environment,
commercial property values, and the ability of small businesses
to recover from the recession. If the expected losses used in determining
the ratings were increased by 10%, the initial model-indicated
ratings for the Class A tranches would be downgraded.
Other methodologies and factors that may have been considered in the process
of rating these transactions can also be found on Moody's website.
Further information on Moody's analysis of this transaction is available
on www.moodys.com.
The complete rating actions are as follows:
Issuer: Lehman Brothers Small Balance Commercial Mortgage Pass-Through
Certificates, Series 2005-1
Cl. A, Confirmed at Aa1 (sf); previously on Feb 4,
2011 Aa1 (sf) Placed Under Review for Possible Downgrade
Cl. A-IO, Confirmed at Aa1 (sf); previously on
Feb 4, 2011 Aa1 (sf) Placed Under Review for Possible Downgrade
Cl. M1, Confirmed at Baa2 (sf); previously on Feb 4,
2011 Baa2 (sf) Placed Under Review for Possible Downgrade
Cl. M2, Confirmed at B1 (sf); previously on Feb 4,
2011 B1 (sf) Placed Under Review for Possible Downgrade
Cl. B, Confirmed at B3 (sf); previously on Feb 4,
2011 B3 (sf) Placed Under Review for Possible Downgrade
Issuer: Lehman Brothers Small Balance Commercial Mortgage Pass-Through
Certificates, Series 2006-2
Cl. 1A, Downgraded to Aa3 (sf); previously on Feb 4,
2011 Aa1 (sf) Placed Under Review for Possible Downgrade
Cl. 2A2, Downgraded to Aa3 (sf); previously on Feb 4,
2011 Aa1 (sf) Placed Under Review for Possible Downgrade
Cl. 2A3, Downgraded to Aa3 (sf); previously on Feb 4,
2011 Aa1 (sf) Placed Under Review for Possible Downgrade
Cl. M1, Downgraded to Ba1 (sf); previously on Feb 4,
2011 Baa1 (sf) Placed Under Review for Possible Downgrade
Cl. M2, Downgraded to Ba3 (sf); previously on Feb 4,
2011 Baa3 (sf) Placed Under Review for Possible Downgrade
Cl. M3, Downgraded to B1 (sf); previously on Feb 4,
2011 Ba3 (sf) Placed Under Review for Possible Downgrade
Cl. B, Confirmed at B2 (sf); previously on Feb 4,
2011 B2 (sf) Placed Under Review for Possible Downgrade
Issuer: Lehman Brothers Small Balance Commercial Mortgage Pass-Through
Certficates, Series 2006-3
Cl. 1A, Downgraded to A3 (sf); previously on Feb 4,
2011 Aa1 (sf) Placed Under Review for Possible Downgrade
Cl. 2A2, Downgraded to A3 (sf); previously on Feb 4,
2011 Aa1 (sf) Placed Under Review for Possible Downgrade
Cl. 2A3, Downgraded to A3 (sf); previously on Feb 4,
2011 Aa1 (sf) Placed Under Review for Possible Downgrade
Cl. M1, Downgraded to Ba3 (sf); previously on Feb 4,
2011 Baa1 (sf) Placed Under Review for Possible Downgrade
Cl. M2, Downgraded to B2 (sf); previously on Feb 4,
2011 Ba1 (sf) Placed Under Review for Possible Downgrade
Cl. M3, Downgraded to Caa1 (sf); previously on Feb 4,
2011 B1 (sf) Placed Under Review for Possible Downgrade
Cl. B, Downgraded to Caa3 (sf); previously on Feb 4,
2011 B2 (sf) Placed Under Review for Possible Downgrade
Issuer: Lehman Brothers Small Balance Commercial Mortgage Pass-Through
Certificates, Series 2007-1
Cl. 1A, Downgraded to A2 (sf); previously on Feb 4,
2011 Aa1 (sf) Placed Under Review for Possible Downgrade
Cl. 2A1, Downgraded to A2 (sf); previously on Feb 4,
2011 Aa1 (sf) Placed Under Review for Possible Downgrade
Cl. 2A2, Downgraded to A2 (sf); previously on Feb 4,
2011 Aa1 (sf) Placed Under Review for Possible Downgrade
Cl. 2A3, Downgraded to A2 (sf); previously on Feb 4,
2011 Aa1 (sf) Placed Under Review for Possible Downgrade
Cl. M1, Downgraded to Ba3 (sf); previously on Feb 4,
2011 Baa1 (sf) Placed Under Review for Possible Downgrade
Cl. M2, Downgraded to B1 (sf); previously on Feb 4,
2011 Baa3 (sf) Placed Under Review for Possible Downgrade
Cl. M3, Downgraded to B2 (sf); previously on Feb 4,
2011 Ba3 (sf) Placed Under Review for Possible Downgrade
Cl. M4, Downgraded to B3 (sf); previously on Feb 4,
2011 B1 (sf) Placed Under Review for Possible Downgrade
Cl. B, Downgraded to Caa1 (sf); previously on Feb 4,
2011 B2 (sf) Placed Under Review for Possible Downgrade
Issuer: Lehman Brothers Small Balance Commercial Mortgage Pass-Through
Certificates, Series 2007-2
Cl. 2A1, Downgraded to A1 (sf); previously on Feb 4,
2011 Aa1 (sf) Placed Under Review for Possible Downgrade
Cl. 2A2, Downgraded to A1 (sf); previously on Feb 4,
2011 Aa1 (sf) Placed Under Review for Possible Downgrade
Cl. 2A3, Downgraded to A1 (sf); previously on Feb 4,
2011 Aa1 (sf) Placed Under Review for Possible Downgrade
Cl. 1A2, Downgraded to A1 (sf); previously on Feb 4,
2011 Aa1 (sf) Placed Under Review for Possible Downgrade
Cl. 1A3, Downgraded to A1 (sf); previously on Feb 4,
2011 Aa1 (sf) Placed Under Review for Possible Downgrade
Cl. 1A4, Downgraded to A1 (sf); previously on Feb 4,
2011 Aa1 (sf) Placed Under Review for Possible Downgrade
Cl. M1, Downgraded to Baa3 (sf); previously on Feb 4,
2011 A3 (sf) Placed Under Review for Possible Downgrade
Cl. M2, Downgraded to Ba3 (sf); previously on Feb 4,
2011 Baa3 (sf) Placed Under Review for Possible Downgrade
Cl. M3, Downgraded to B1 (sf); previously on Feb 4,
2011 Ba1 (sf) Placed Under Review for Possible Downgrade
Cl. M4, Downgraded to B2 (sf); previously on Feb 4,
2011 Ba3 (sf) Placed Under Review for Possible Downgrade
Cl. M5, Downgraded to B3 (sf); previously on Feb 4,
2011 B1 (sf) Placed Under Review for Possible Downgrade
Cl. B, Downgraded to Caa1 (sf); previously on Feb 4,
2011 B2 (sf) Placed Under Review for Possible Downgrade
Issuer: Lehman Brothers Small Balance Commercial Mortgage Pass-Through
Certificates, Series 2007-3
Cl. AM, Downgraded to Aa3 (sf); previously on Feb 4,
2011 Aa1 (sf) Placed Under Review for Possible Downgrade
Cl. AJ, Downgraded to Baa1 (sf); previously on Feb 4,
2011 Aa1 (sf) Placed Under Review for Possible Downgrade
Cl. M1, Downgraded to Baa3 (sf); previously on Feb 4,
2011 A3 (sf) Placed Under Review for Possible Downgrade
Cl. M2, Downgraded to Ba1 (sf); previously on Feb 4,
2011 Baa3 (sf) Placed Under Review for Possible Downgrade
Cl. M3, Downgraded to Ba3 (sf); previously on Feb 4,
2011 Ba2 (sf) Placed Under Review for Possible Downgrade
Cl. M4, Downgraded to B1 (sf); previously on Feb 4,
2011 Ba3 (sf) Placed Under Review for Possible Downgrade
Cl. M5, Downgraded to B2 (sf); previously on Feb 4,
2011 B1 (sf) Placed Under Review for Possible Downgrade
Cl. B, Downgraded to B3 (sf); previously on Feb 4,
2011 B2 (sf) Placed Under Review for Possible Downgrade
Issuer: LBSBC Net Interest Margin Securities, Series 2005-2
Cl. N2, Confirmed at Caa3 (sf); previously on Feb 4,
2011 Caa3 (sf) Placed Under Review for Possible Downgrade
Issuer: LBSBC Net Interest Margin Notes, Series 2006-1
Cl. N1, Downgraded to Caa3 (sf); previously on Feb 4,
2011 Ba1 (sf) Placed Under Review for Possible Downgrade
Cl. N2, Confirmed at Ca (sf); previously on Feb 4,
2011 Ca (sf) Placed Under Review for Possible Downgrade
Issuer: LBSBC Net Interest Margin Securities, Series 2006-2
Cl. N1, Confirmed at Ca (sf); previously on Feb 4,
2011 Ca (sf) Placed Under Review for Possible Downgrade
Moody's Investors Service received and took into account one or more third
party due diligence reports on the underlying assets in this transaction
and the due diligence reports had a neutral impact on the rating.
REGULATORY DISCLOSURES
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.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purpose of maintaining
a credit rating.
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.
New York
Irina Faynzilberg
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Katherine Lew
Associate 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.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's takes rating actions on nine Lehman Brothers small business loan ABS