Email Research
Thank you for your interest in sharing Moody's Research. You have reached the daily limit of Research email sharings.
Thank you!
You have successfully sent the research.
Please note: some research requires a paid subscription in order to access.
Already a customer?
LOG IN
Don't want to see this again?
REGISTER
Accept our to continue to Moodys.com:
PLEASE READ
AND SCROLL DOWN!
By clicking “I AGREE” [at the end of this document],
you indicate that you understand and intend these terms and conditions to be
the legal equivalent of a signed, written contract and equally binding, and
that you accept such terms and conditions as a condition of viewing any and all
Moody’s information that becomes accessible to you [after clicking “I AGREE”] (the
“Information”). References herein to “Moody’s” include Moody’s
Corporation, Inc. and each of its subsidiaries and affiliates.
Terms of One-Time Website Use
1. Unless
you have entered into an express written contract with Moody’s to the contrary,
you agree that you have no right to use the Information in a commercial or
public setting and no right to copy it, save it, print it, sell it, or publish
or distribute any portion of it in any form.
2. You
acknowledge and agree that Moody’s credit ratings: (i) are current opinions of
the future relative creditworthiness of securities and address no other risk; and
(ii) are not statements of current
or historical fact or recommendations to purchase, hold or sell particular
securities. Moody’s credit ratings and
publications are not intended for retail investors, and it would be reckless
and inappropriate for retail investors to use Moody’s credit ratings and
publications when making an investment decision. No
warranty, express or implied, as the accuracy, timeliness, completeness,
merchantability or fitness for any particular purpose of any Moody’s credit
rating is given or made by Moody’s in any form whatsoever.
3. To the extent permitted by law, Moody’s and its directors,
officers, employees, representatives, licensors and suppliers disclaim
liability for: (i) any indirect, special, consequential, or incidental losses
or damages whatsoever arising from or in connection with use of the
Information; and (ii) any direct or compensatory damages caused to any person
or entity, including but not limited to by any negligence (but excluding fraud
or any other type of liability that by law cannot be excluded) on the part of
Moody’s or any of its directors, officers, employees, agents, representatives,
licensors or suppliers, arising from or in connection with use of the
Information.
4. You agree to read [and
be bound by] the more detailed disclosures regarding Moody’s ratings and the
limitations of Moody’s liability included in the Information.
5. You agree that any disputes relating to this agreement or your use of
the Information, whether sounding in contract, tort, statute or otherwise,
shall be governed by the laws of the State of New York and shall be subject to
the exclusive jurisdiction of the courts of the State of New York located in
the City and County of New York, Borough of Manhattan.
I AGREE
04 Mar 2009
Approximately $112 billion of structured securities affected
New York, March 04, 2009 -- Moody's Investors Service (Moody's) today announced that it will update
four key parameters in its rating and review of U.S. commercial
real estate collateralized debt obligation transactions (CRE CDOs).
The updated parameters will supplement or refine the parameter revisions
adopted in December 2008 as described in the following section entitled
"Background".
First, for CRE CDOs with CUSIP collateral, the additional
default probability stress sometimes applied to resecuritization collateral
will not be applied to Moody's review of conduit and fusion commercial
mortgage backed securities (CMBS) collateral from the 2006 to 2008 vintages
due to a recent ratings sweep of these transactions. Based on Moody's
current expectations for commercial real estate performance, we
have migrated the ratings for recent vintage CMBS to levels that we believe
will remain relatively stable for the next 12 to 24 months. As
such, Moody's has eliminated the vintage stress factor and
default probability resecuritization stress from its analysis of deals
with recent vintage CMBS collateral.
For deals with pre-2006 CMBS collateral, Moody's is
adopting the default probability resecuritization stress assumptions contained
within CDOROM v2.5 to capture the leveraging effect and potential
ratings volatility of the underlying collateral. For CMBS,
this factor is equivalent to two times the probability of default (PD)
for non-Aaa and six times the PD for Aaa-rated collateral.
For CRE CDOs, this factor is equivalent to four times the probability
of default (PD) for non-Aaa and twelve times the PD for Aaa-rated
collateral. The lower stress for CMBS is due to the historical
stable performance of this asset class.
Second, in its cash flow modeling, Moody's will assume
a delay in the default timing to better reflect its expectation of how
the underlying real estate based collateral will perform in this recession.
Third, for CRE CDOs with non-CUSIP collateral, Moody's
is eliminating the additional default probability stress in CDOROM v2.5
that is applied to corporate debt as we anticipate that the underlying
non-CMBS collateral will experience lower default rates and higher
recovery rates.
Fourth, for CRE CDOs with non-CUSIP collateral, Moody's
is reducing the maximum over concentration stress applied to correlation
factors by half due to the diversity of tenants, property types,
and geographic locations inherent in the collateral pools. For
those deals that are significantly less diversified, we will add
back over concentration stress as warranted.
These changes bring into alignment Moody's modeling of CRE CDOs
with its expectations for the performance of the underlying real estate
collateral.
BACKGROUND
On December 19, 2008, Moody's placed on review for possible
downgrade 109 US CRE CDOs because of weakening commercial real estate
market fundamentals and revised key modeling parameters.
The revised parameters in Moody's model for rating and monitoring CRE
CDOs were related to asset correlation, default probability,
and recovery rate. These revisions were consistent with recent
revisions to key parameters for rating and monitoring other collateralized
debt obligation transactions backed by structured finance securities ("SF
CDOs").
Asset Correlation As part of the revised parameters, Moody's
updated its asset correlation assumption for the commercial real estate
sector to be consistent with the February 3, 2009 release of one
of its CRE CDO rating models, CDOROM v2.5 (for more details
on the model please refer to Moody's Special Report "CDOROM
v2.5 User Guide" available at www.moodys.com).
Previously, the average asset correlations used for CMBS within
CRE CDO deals ranged between 15% and 35%, depending
on vintage and issuer diversity. In light of the systemic seizure
of the credit markets, as well as higher intra industry and inter
industry asset correlations, the updated correlation parameters
for CRE CDOs resulted in an average range of asset correlations of between
30% and 60% for CMBS collateral.
Default Probability Default probability is typically captured in Moody's
models in the collateral weighted average rating factor (WARF).
In cases where CUSIP collateral is resecuritized, CDOROM v2.5
adds stress to capture the leveraging effect of the derivative transaction.
In lieu of applying this resecuritization stress to all CUSIP collateral,
Moody's had previously applied a vintage stress factor only to the
CRE CDOs' underlying CMBS collateral issued between 2006 and 2008.
This factor was equivalent to a one-half to two notch downgrade
to the underlying collateral depending on the vintage and was intended
to account in part for increased potential default probability and in
part for the leveraging effect.
Recovery Rate In Moody's analysis of synthetic CRE CDOs, it
historically employed a fixed recovery rate by the asset's original
rating and tranche size. Going forward, Moody's will
use a simulation based mean recovery rate based on the asset's current
rating and tranche size. This is consistent with the assumptions
underlying CDOROM v2.5. By simulating a range of potential
recovery rates around the mean, Moody's expects to capture
in its ratings more of the tail risk associated with variability of recovery
rates.
TIMETABLE FOR ACTION
Moody's review of the 109 transactions that were placed on review
for downgrade in December 2008 initially focused on transactions with
more than 75% pool concentration in CMBS collateral and issued
prior to January 2006. Moody's has completed reviews and
taken action on 30 of the 109 transactions.
Having completed a ratings sweep of 2006-2008 vintage conduit and
fusion CMBS deals in mid-February, Moody's is now embarking
on the second phase of its CRE CDO review which will include transactions
with CMBS collateral issued post-2005. Moody's will
also revisit nine transactions where the previous modeling parameters
were applied along with the 79 remaining CRE CDO transactions with CUSIP
collateral that are currently on review for downgrade. Moody's
anticipates completing reviews of all 109 transactions by March 31,
2009.
A final phase of Moody's CRE CDO ratings sweep will focus on 52
CRE CDOs collateralized primarily by non-CUSIP collateral,
including whole loans, B-notes, and mezzanine debt.
While initial phases of Moody's CRE CDO review involved mostly static
deals, the final phase will involve transactions that have a revolving
period and profile tests.
LIKELY MAGNITUDE OF RATINGS TRANSITIONS
For the 30 transactions that Moody's has completed reviews on and
taken action, the Aaa-rated CRE CDO classes were downgraded
by 8 to 10 notches, on average. Low investment-grade
and speculative grade bonds were downgraded by 4 to 8 notches, on
average.
For the remaining 79 CRE CDO transactions with CUSIP collateral,
Moody's anticipates that the downgrades on all rated classes will
range from 2 to 8 notches in most cases.
For deals with significant exposure to 2006-2008 vintage CMBS,
the magnitude of the downgrades is expected to be at the maximum end of
the range. For deals with earlier vintage CMBS collateral or a
lower weighted average rating factor (WARF), the magnitude of the
downgrades is expected to be at the minimum end of the range. However,
other factors, such as the current credit enhancement, bond
thickness, excess spread, and ratings distribution of the
underlying collateral (collectively, "contributing factors"),
will also influence the results.
For the 52 CRE CDOs collateralized primarily by non-CUSIP collateral,
Moody's anticipates that the downgrades on all rated classes will
range from 7 to 12 notches in most cases. The actual magnitude
of the ratings migration will vary based on the collateral performance,
contributing factors and coverage tests.
As always, Moody's ratings are determined by a committee process
that considers both quantitative and qualitative factors. The rating
outcome may differ from the model output.
This press release updates the modeling parameters in Moody's current
CRE CDO methodologies:
• "U.S. CMBS: Moody's Approach to Rating Synthetic
CMBS Resecuritizations" dated December 19, 2005;
• "U.S. CMBS: Moody's Approach to Rating Static
CDOs Backed by Commercial Real Estate Securities" dated June 17,
2004; and
• "CMBS: Moody's Approach to Revolving Facilities in CDOs Backed
by Commercial Real Estate Interests" dated July 29, 2004.
These methodologies can be found at www.moodys.com in the
Credit Policy & Methodologies directory, in the Ratings Methodologies
subdirectory. Other methodologies and factors that may have been
considered in the process of rating this issue can also be found in the
Credit Policy & Methodologies directory.
For more information please see www.moodys.com.
New York
Michael M. Gerdes
Senior Vice President
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Deryk Meherik
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's updates four key assumptions for rating U.S. CRE CDOs
No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.
CREDIT RATINGS ISSUED BY MOODY'S INVESTORS SERVICE, INC. AND ITS RATINGS AFFILIATES (“MIS”) ARE MOODY’S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MOODY’S PUBLICATIONS MAY INCLUDE MOODY’S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE MOODY’S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY’S RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND MOODY’S OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY’S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. CREDIT RATINGS AND MOODY’S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND MOODY’S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. NEITHER CREDIT RATINGS NOR MOODY’S PUBLICATIONS COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT RATINGS AND PUBLISHES MOODY’S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.
MOODY’S CREDIT RATINGS AND MOODY’S PUBLICATIONS ARE NOT INTENDED FOR USE BY RETAIL INVESTORS AND IT WOULD BE RECKLESS AND INAPPROPRIATE FOR RETAIL INVESTORS TO USE MOODY’S CREDIT RATINGS OR MOODY’S PUBLICATIONS WHEN MAKING AN INVESTMENT DECISION. IF IN DOUBT YOU SHOULD CONTACT YOUR FINANCIAL OR OTHER PROFESSIONAL ADVISER.
ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY LAW, INCLUDING BUT NOT LIMITED TO, COPYRIGHT LAW, AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY’S PRIOR WRITTEN CONSENT.
CREDIT RATINGS AND MOODY’S PUBLICATIONS ARE NOT INTENDED FOR USE BY ANY PERSON AS A BENCHMARK AS THAT TERM IS DEFINED FOR REGULATORY PURPOSES AND MUST NOT BE USED IN ANY WAY THAT COULD RESULT IN THEM BEING CONSIDERED A BENCHMARK.
All information contained herein is obtained by MOODY’S from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein is provided “AS IS” without warranty of any kind. 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 or in preparing the Moody’s publications.
To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability to any person or entity for any indirect, special, consequential, or incidental losses or damages whatsoever arising from or in connection with the information contained herein or the use of or inability to use any such information, even if MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers is advised in advance of the possibility of such losses or damages, including but not limited to: (a) any loss of present or prospective profits or (b) any loss or damage arising where the relevant financial instrument is not the subject of a particular credit rating assigned by MOODY’S.
To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability for any direct or compensatory losses or damages caused to any person or entity, including but not limited to by any negligence (but excluding fraud, willful misconduct or any other type of liability that, for the avoidance of doubt, by law cannot be excluded) on the part of, or any contingency within or beyond the control of, MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers, arising from or in connection with the information contained herein or the use of or inability to use any such information.
NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY CREDIT RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY’S IN ANY FORM OR MANNER WHATSOEVER.
Moody’s Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody’s Corporation (“MCO”), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody’s Investors Service, Inc. have, prior to assignment of any rating, agreed to pay to Moody’s Investors Service, Inc. for ratings opinions and services rendered by it fees ranging from $1,000 to approximately $2,700,000. MCO and MIS also maintain policies and procedures to address the independence of MIS’s ratings and rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold ratings from MIS and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading “Investor Relations — Corporate Governance — Director and Shareholder Affiliation Policy.”
Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY’S affiliate, Moody’s Investors Service Pty Limited ABN 61 003 399 657AFSL 336969 and/or Moody’s Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). This document is intended to be provided only to “wholesale clients” within the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, you represent to MOODY’S that you are, or are accessing the document as a representative of, a “wholesale client” and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to “retail clients” within the meaning of section 761G of the Corporations Act 2001. MOODY’S credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors.
Additional terms for Japan only: Moody's Japan K.K. (“MJKK”) is a wholly-owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly-owned by Moody’s Overseas Holdings Inc., a wholly-owned subsidiary of MCO. Moody’s SF Japan K.K. (“MSFJ”) is a wholly-owned credit rating agency subsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization (“NRSRO”). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registered with the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively.
MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any rating, agreed to pay to MJKK or MSFJ (as applicable) for ratings opinions and services rendered by it fees ranging from JPY125,000 to approximately JPY250,000,000.
MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.
|
|
