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Related Issuers
Rating Action:

Moody's upgrades rating on $53.3 million of SF CDO notes issued by Pacific Bay CDO, Ltd.

16 Dec 2014

New York, December 16, 2014 -- Moody's Investors Service has upgraded the rating on one note issued by Pacific Bay CDO, Ltd.:

U.S.$64,000,000 Class A-2 Second Priority Senior Secured Floating Rate Notes Due 2038 (current outstanding balance of $53,273,378), Upgraded to Ba1 (sf); previously on March 20, 2014 Upgraded to B3 (sf)

Pacific Bay CDO, Ltd., issued in November 2003, is a collateralized debt obligation backed primarily by a portfolio of RMBS, ABS, CMBS and Corporate securities, with over 60% of the portfolio consisting of RMBS originated from 2002 to 2005.

RATINGS RATIONALE

The rating action is due primarily to the deleveraging of the senior notes and an increase in the transaction's over-collateralization (OC) ratios since March 2014. The Class A-2 notes have paid down by approximately 20.0%, or $13.3 million since March 2014. The paydown includes repayment of $2.5 million of the Class A-2 note deferred interest balance. Based on Moody's calculation, the OC ratio of the Class A-2 note is 139.40%, versus 89.63% in March 2014. The increase in the Moody's calculated Class A-2 OC ratio is due to deleveraging of the A-2 notes as well as inclusion of $25 million of trustee-defaulted assets previously excluded in calculating the ratio. These assets are all currently rated Caa3 or better and are currently performing. As a result, Moody's believes their inclusion in the analysis of performing par provides a more reasonable assessment of collateral coverage.

The deal has also benefited from an improvement in the weighted average spread (WAS) of the portfolio. Based on the trustee's October 2014 report, the WAS is currently 3.52%, compared to 2.27% in February 2014.

On December 10, 2008, the transaction experienced an "Event of Default" and a majority of the controlling class directed the trustee to declare the notes immediately due and payable in May 2009. As a result of acceleration, the Class A notes will receive all interest and principal proceeds until they are paid in full. On the transaction's November 2014 payment date, $943,229 of excess interest proceeds were used to pay down Class A notes. The Event of Default continues.

Methodology Underlying the Rating Action

The principal methodology used in this rating was "Moody's Approach to Rating SF CDOs," published in March 2014. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Factors That Would Lead To an Upgrade or Downgrade of the Rating:

This transaction is subject to a number of factors and circumstances that could lead to either an upgrade or downgrade of the ratings, as described below:

1) Macroeconomic uncertainty: Primary causes of uncertainty about assumptions are the extent of any slowdown in growth in the current macroeconomic environment and in the commercial and residential real estate property markets. Although the commercial real estate property markets are gaining momentum, consistent growth will be unlikely until the volume of transactions increases, distressed properties are cleared from the pipeline and job creation rebounds. The residential real estate property market is subject to uncertainty about housing prices; the pace of residential mortgage foreclosures, loan modifications and refinancing; the unemployment rate; and interest rates.

2) Deleveraging: One source of uncertainty in this transaction is whether deleveraging from unscheduled principal proceeds, recoveries from defaulted assets, and excess interest proceeds will continue and at what pace. Faster deleveraging than Moody's expects could have a significant impact on the notes' ratings.

3) Recovery of defaulted assets: The amount of recoveries received from defaulted assets reported by the trustee and those that Moody's assumes as having defaulted as well as the timing of these recoveries create additional uncertainty. Moody's analyzed defaulted assets assuming limited recoveries, and therefore, realization of any recoveries exceeding Moody's expectation in the future would positively impact the notes' ratings.

Loss and Cash Flow Analysis:

Moody's applies a Monte Carlo simulation framework in Moody's CDOROM™ to model the loss distribution for SF CDOs. The simulated defaults and recoveries for each of the Monte Carlo scenarios define the reference pool's loss distribution. Moody's then uses the loss distribution as an input in the CDOEdge™ cash flow model.

In addition to the base case analysis, Moody's also conducted sensitivity analyses to test the impact of a number of default probabilities on the rated notes. Below is a summary of the impact of different default probabilities on all of the rated notes (by the difference in the number of notches versus the current model output, for which a positive difference corresponds to lower expected loss):

Ba1 and below ratings notched up by two rating notches:

Class A-2: +3

Class B: 0

Class C: 0

Preference Shares: 0

Ba1 and below ratings notched down by two notches:

Class A-2: -3

Class B: 0

Class C: 0

Preference Shares: 0

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.

Moody's did not receive or take into account a third-party assessment on the due diligence performed regarding the underlying assets or financial instruments related to the monitoring of this transaction in the past six months.

Moody's describes its loss and cash flow analysis in the section "Ratings Rationale" of this press release.

As the section on loss and cash flow analysis describes, 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. Moody's weights the impact on the rated instruments based on its assumptions of the likelihood of the events in such scenarios occurring.

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 rating action on the support provider and in relation to each particular 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 rating action, and whose ratings may change as a result of this 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.

Kristen Contrera
Associate 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

David Ham
VP - Senior Credit Officer
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

Moody's upgrades rating on $53.3 million of SF CDO notes issued by Pacific Bay CDO, Ltd.
No Related Data.
© 2022 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 CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. 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 APPLICABLE MOODY’S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY’S CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS (“ASSESSMENTS”), AND OTHER 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. AND/OR ITS AFFILIATES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT RATINGS, ASSESSMENTS AND OTHER OPINIONS AND PUBLISHES ITS 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.

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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 credit rating, agreed to pay to MJKK or MSFJ (as applicable) for credit ratings opinions and services rendered by it fees ranging from JPY100,000 to approximately JPY550,000,000.

MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.

​
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