Moody's also affirms the ratings of four classes of notes
New York, August 06, 2015 -- Moody's Investors Service has upgraded the ratings on the following notes
issued by Sorin Real Estate CDO IV Ltd. ("Sorin RE CDO IV"):
Cl. A-1, Upgraded to Aa3 (sf); previously on
Aug 20, 2014 Upgraded to A2 (sf)
Cl. A-2, Upgraded to Baa3 (sf); previously on
Aug 20, 2014 Upgraded to Ba2 (sf)
Cl. A-3, Upgraded to Ba2 (sf); previously on
Aug 20, 2014 Upgraded to B1 (sf)
Cl. B, Upgraded to B2 (sf); previously on Aug 20,
2014 Upgraded to Caa1 (sf)
Cl. C, Upgraded to Caa2 (sf); previously on Aug 20,
2014 Affirmed Ca (sf)
Moody's Investors Service has also affirmed the ratings on the following
notes issued by Sorin RE CDO IV:
Cl. D, Affirmed C (sf); previously on Aug 20,
2014 Affirmed C (sf)
Cl. E, Affirmed C (sf); previously on Aug 20,
2014 Affirmed C (sf)
Cl. F, Affirmed C (sf); previously on Aug 20,
2014 Affirmed C (sf)
Cl. G, Affirmed C (sf); previously on Aug 20,
2014 Affirmed C (sf)
RATINGS RATIONALE
Moody's has upgraded the ratings of notes due to higher than anticipated
recoveries on high credit risk collateral combined with the remaining
pool collateralized by lower risk collateral as evidenced by the WARF
and WARR. Moody's has also affirmed the ratings of on the transaction
because key transaction metrics are commensurate with the existing ratings.
The rating action is the result of Moody's on-going surveillance
of commercial real estate collateralized debt obligation and collateralized
loan obligation (CRE CDO CLO) transactions.
Sorin RE CDO IV is a cash transaction whose reinvestment period ended
in October 2011. The transaction is backed by a portfolio of:
i) commercial mortgage backed securities (CMBS) (52.5% of
the pool balance); ii) whole loans and senior participations (26.3%);
iii) bank loans (16.7%); and iv) CRE CDO securities
(4.5%). As of the June 30, 2015 trustee report,
the aggregate note balance of the transaction, including preferred
shares, has decreased to $169.1 million from $400.0
million at issuance, with principal pay-down directed to
the senior most outstanding class of notes. The pay-down
was the result of a combination of regular amortization, resolution
and sales of defaulted collateral, and the failing of certain par
value tests.
The pool contains two bank loans and one CRE CDO securities totaling $21.5
million (21.2% of the collateral pool balance) that are
listed as defaulted securities as of the trustee's June 30,
2015 report. While there have been moderate realized losses on
the underlying collateral to date, Moody's does expect high losses
to occur on the defaulted securities.
Moody's has identified the following as key indicators of the expected
loss in CRE CDO transactions: the weighted average rating factor
(WARF), the weighted average life (WAL), the weighted average
recovery rate (WARR), and Moody's asset correlation (MAC).
Moody's typically models these as actual parameters for static deals
and as covenants for managed deals.
WARF is a primary measure of the credit quality of a CRE CDO pool.
Moody's has updated its assessments for the reference obligations it does
not rate. The rating agency modeled a bottom-dollar WARF
of 3360, compared to 3596 at last review. The current ratings
on the Moody's-rated reference obligations and the assessments
of the non-Moody's rated reference obligation follow: Aaa-Aa3
and 7.9% compared to 5.6% at last review;
A1-A3 and 25.7% compared to 18.2% at
last review; Baa1-Baa3 and 0.0% , the
same as last review; Ba1-Ba3 and 4.2% compared
to 6.7% at last review; B1-B3 and 41.0%
compared to 35.4% at last review; and Caa1-Ca/C
and 21.2% compared to 34.1% at last review.
Moody's modeled a WAL of 1.2 years, compared to 1.9
years at last review. The WAL includes assumptions about extensions
on the underlying collateral.
Moody's modeled a fixed WARR of 18.6%, compared to
13.9% at last review.
Moody's modeled a MAC of 6.9%, compared to 16.6%
at last review.
Methodology Underlying the Rating Action:
The principal methodology used in these ratings was "Moody's Approach
to Rating SF CDOs" published in July 2015. 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:
The performance of the notes is subject to uncertainty, because
it is sensitive to the performance of the underlying portfolio,
which in turn depends on economic and credit conditions that are subject
to change. The servicing decisions of the master and special servicer
and surveillance by the operating advisor with respect to the collateral
interests and oversight of the transaction will also affect the performance
of the rated notes.
Moody's Parameter Sensitivities: Changes to any one or more
of the key parameters could have rating implications for the rated notes,
although a change in one key parameter assumption could be offset by a
change in one or more of the other key parameter assumptions. The
rated notes are particularly sensitive to changes in the recovery rate
of the underlying collateral and credit assessments. Holding all
other key parameters static, reducing the recovery rate by 10%
would result in modeled rating movement on the rated notes of zero to
two notches downward (e.g. one notch down implies a rating
movement from Baa3 to Ba1). Increasing the recovery rate by 10%
would result modeled rating movement on the rated notes of zero to three
notches upward (e.g. one notch up implies a rating movement
from Baa3 to Baa2).
The primary sources of uncertainty in Moody's assumptions are the
extent of growth in the current macroeconomic environment given the weak
recovery and certain commercial real estate property markets. Commercial
real estate property values continue to improve modestly, along
with a rise in investment activity and stabilization in core property
type performance. Limited new construction and moderate job growth
have aided this improvement. However, sustained growth will
not be possible until investment increases steadily for a significant
period, non-performing properties are cleared from the pipeline
and fears of a euro area recession abate.
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.
The analysis relies on a Monte Carlo simulation that generates a large
number of collateral loss or cash flow scenarios, which on average
meet key metrics Moody's determines based on its assessment of the
collateral characteristics. Moody's then evaluates each simulated
scenario using model that replicates the relevant structural features
and payment allocation rules of the transaction, to derive losses
or payments for each rated instrument. The average loss a rated
instrument incurs in all of the simulated collateral loss or cash flow
scenarios, which Moody's weights based on its assumptions
about the likelihood of events in such scenarios actually occurring,
results in the expected loss of the rated instrument.
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.
Biao He
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
Deryk Meherik
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 ratings of five classes of notes issued by Sorin RE CDO IV
