New York, April 01, 2015 -- Moody's Investors Service has upgraded the rating on notes issued by STACK
2004-1, Ltd.:
U.S.$27,000,000 Class B Floating Rate
Term Notes, Due May 10, 2039 (current outstanding balance
of $17,522,232), Upgraded to Caa2 (sf);
previously on April 27, 2012 Downgraded to Caa3 (sf).
STACK 2004-1, LTD., issued in April 2003,
is a collateralized debt obligation issuance backed primarily by a portfolio
of RMBS, CMBS and ABS originated between 2002 and 2004.
RATINGS RATIONALE
The rating action is due primarily to the deleveraging of the senior notes
and an increase in the transaction's over-collateralization
ratios since May 2014. The Class A notes have paid in full and
Class B notes have paid down by approximately 37.6%,
or $10.5 million since that time. Based on the trustee's
March 2015 report, the over-collateralization ratio of the
Class B notes is reported at 109.27% versus 96.32%
in May 2014. The paydown of the Class A and Class B notes is partially
the result of cash collections from certain assets treated as defaulted
by the trustee in amounts materially exceeding expectations. We
have assumed the deal will continue to benefit from potential recoveries
on defaulted securities, some of which have experienced significant
price increases in the last two years.
Despite benefits of the deleveraging, the credit quality of the
portfolio has deteriorated since May 2014. Based on the trustee's
March 2015 report, the weighted average rating factor (WARF) is
currently 5084, compared to 3899 in May 2014.
The trustee reported that, on April 8, 2011, the transaction
experienced an "Event of Default" when the Class A/B overcollateralization
ratio having declined below 100%, the minimum required under
Section 5.1(i) of the indenture. On July 20, 2011,
the Holders of at least 50% of the controlling class have directed
the trustee to declare the notes immediately due and payable. The
Event of Default continues. Under the acceleration waterfall,
Class B notes receives all the interest and principal proceeds until they
are paid in full.
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 (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 (3399):
Class B: +4
Class C: 0
Class D: 0
Caa ratings notched down by two notches (5955):
Class B: 0
Class C: 0
Class D: 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.
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.
Haoning Ding
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
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 USD 17.5 million of SF CDO notes issued by STACK 2004-1, Ltd.
