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01 Nov 2010
Approximately $14 million of debt securities affected
New York, November 01, 2010 -- Moody's Investors Service announced today the following rating action
on Morgan Stanley ACES SPC Series 2007-28, a collateralized
debt obligation transaction (the "Collateralized Synthetic Obligation"
or "CSO") referencing a static portfolio of 58 synthetic credit corporate
U.S. $15,000,000 Class A Secured Floating
Rates Notes due 2012, Upgraded to B2 (sf); previously on March
11, 2009 Downgraded to Caa1 (sf)
Moody's explained that the rating action taken today is the result shortened
time to maturity and adequate remaining subordination of the CSO tranche.
There have been a large number of credit events since the last rating
action, but the credit quality of the remaining portfolio has improved.
The underlying portfolio of synthetic credit securities references senior
secured loans. The 10-year weighted average rating factor
(WARF) of the portfolio, excluding credit events, is 2691,
equivalent to B2. This compares to a 10-year WARF of 3351
from the last rating action, also excluding credit events.
Since the last rating action, there have been credit events on Charter
Communications Operating, LLC., General Growth Properties,
Inc., HLI Operating Company, Inc., Dex
Media East, LLC, Dex Media West LLC, Six Flags Theme
Parks, Inc., Lear Corporation, Accuride Corporation,
Metro-Goldwyn-Mayer Inc. The CSO notes have a remaining
life of 1.4 years and remaining credit enhancement of approximately
6%, down from approximately 9% as of the last rating
In the process of determining the rating action, Moody's took into
account the results of a number of sensitivity analyses and stress scenarios:
(1) Removal of forward-looking measures - The notching adjustment
on each entity's rating due to credit watch or negative outlook was removed.
The result of this run was one notch better than the base case.
(2) Use of Market Implied Ratings - MIRs were used in place of
the corporate fundamental ratings to derive the default probability of
each corporate name in the reference portfolio. The gap between
an MIR and a Moody's corporate fundamental rating is an indicator of the
extent of the divergence of credit view between Moody's and the market.
The result of this run was two notches worse than the base case.
(3) Reduction of time to maturity -- Time to maturity was
reduced by six months, all other things being equal. The
result of this run was three notches better than the base case.
(4) Stress on largest industry group -- All entities in
the Hotel, Gaming, and Leisure sector, the largest sector
concentration, representing 15% of the portfolio notional,
were notched down by one. The result of this run was one notch
worse than the base case.
In addition, to the quantitative factors that are explicitly modeled,
qualitative factors are part of rating committee considerations.
These qualitative factors include the structural protections in each transaction,
the recent deal performance in the current market environment, 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 methodology used in this transaction was "Moody's Approach
to Rating Corporate Synthetic Obligations" published in September 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.
Moody's analysis for this transaction is based on CDOROMv2.6.
This model is available on moodys.com under Products and Solutions
- Analytical models, upon return of a signed free license
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 6 months.
Due to the impact of revised and updated key assumptions referenced in
"Moody's Approach to Rating Corporate Synthetic Obligations", key
model inputs used by Moody's in its analysis may be different from the
manager/arranger'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".
Moody's did not run a separate loss and cash flow analysis other than
the one already done using the CDOROM model. For a description
of the analysis, refer to the methodology and the CDOROM user guide
on Moody's website.
Moody's also ran a stress scenario defaulting all entities in the reference
portfolio rated Caa1 and below. The result of this run was four
notches worse than the base case.
Moody's analysis of corporate CSOs is subject to uncertainties,
the primary sources of which includes complexity, governance and
leverage. Although the CDOROM model capture many of the dynamics
of the Corporate CSO structure, it remains a simplification of the
complex reality. Of greatest concern are (a) variations over time
in default rates for instruments with a given rating, (b) variations
in recovery rates for instruments with particular seniority/security characteristics
and (c) uncertainty about the default and recovery correlations characteristics
of the reference pool. Similarly on the legal/structural side,
the legal analysis although typically based in part on opinions (and sometimes
interpretations) of legal experts at the time of issuance, is still
subject to potential changes in law, case law and the interpretations
of courts and (in some cases) regulatory authorities. The performance
of this CSO is also dependent on on-going decisions made by one
or several parties, including the Manager and the Trustee.
Although the impact of these decisions is mitigated by structural constraints,
anticipating the quality of these decisions necessarily introduces some
level of uncertainty in our assumptions. Given the tranched nature
of Corporate CSO liabilities, rating transitions in the reference
pool may have leveraged rating implications for the ratings of the Corporate
CSO liabilities, thus leading to a high degree of volatility.
All else being equal, the volatility is likely to be higher for
more junior or thinner liabilities.
The base case scenario modeled fits into the central macroeconomic scenario
predicted by Moody's of a sluggish recovery scenario of the corporate
universe. Should macroeconomic conditions evolve towards a more
severe scenario such as a double dip recession, the CSO rating will
likely be downgraded to an extent depending on the expected severity of
the worsening conditions
Information sources used to prepare the credit rating are the following:
parties not involved in the ratings.
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 website, 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.
Senior Vice President
Structured Finance Group
Moody's Investors Service
Structured Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's upgrades CSO notes issued by Morgan Stanley ACES SPC Series 2007-28
250 Greenwich Street
New York, NY 10007
No Related Data.
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