Approximately USD 61 million of securities affected
New York, February 13, 2014 -- Moody's Investors Service has upgraded the rating on the following note
issued by ACA ABS 2002-1, Ltd.:
U.S.$64,000,000 Class B Second Priority
Senior Secured Floating Rate Notes Due August 1, 2037 (current outstanding
balance of $60,948,944.27), Upgraded to
Caa3 (sf); previously on April 26, 2010 Downgraded to Ca (sf).
ACA ABS 2002-1, Ltd., issued in July 2002,
is a collateralized debt obligation (CDO) backed primarily by a portfolio
of RMBS, CMBS, and ABS assets.
RATINGS RATIONALE
The rating action results primarily from the improved credit profile of
the Class B notes. Moody's observes that the Class B notes
are now the senior-most outstanding liabilities, following
repayment in full of the Class A notes. The Class B notes continue
to receive all current interest payments. Additionally, failing
coverage tests have resulted in diversion of excess interest, which
in the past amortized the Class A notes and the Class B notes.
This excess interest helps to improve the transaction's over-collateralization
(OC) ratios. For example, on the February 3, 2014 payment
date, the Class B notes received $683,179.50
from excess interest proceeds to pay down the notes. Moody's
expects the Class B notes to continue to benefit from such diversion of
excess interest -- whose stability is supported by a significant
proportion of collateral debt securities paying fixed-rate coupons
-- in the immediate future. Notwithstanding the foregoing,
Moody's notes that the Class B notes continue to be exposed to significant
risk of principal loss over its term. Based on the trustee report
dated December 31, 2013, the Class B notes were reported to
be under-collateralized, with an OC ratio of 77.98%.
Methodology Underlying the Rating Action
The principal methodology used in this rating was "Moody's Approach to
Rating SF CDOs," published in May 2012. 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.
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 no recoveries, and therefore, realization
of any recoveries in the future would positively impact the SF CDO.
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 (expressed in terms of WARF) 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):
Caa ratings notched up by two rating notches (2156)
Class B: 0
Class C: 0
Caa ratings notched down by two notches (3424)
Class B: 0
Class C: 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.
Shan Lai
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
Ramon O Torres
Senior Vice President/Manager
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 CDO notes issued by ACA ABS 2002-1, Ltd.
