Moody's also affirms ratings of two classes of notes
New York, August 06, 2015 -- Moody's Investors Service has upgraded the ratings on the following notes
issued by Crest 2003-2, Ltd. ("Crest 2003-2"):
Cl. D-1, Upgraded to Ba1 (sf); previously on
Nov 13, 2014 Affirmed B3 (sf)
Cl. D-2, Upgraded to Ba1 (sf); previously on
Nov 13, 2014 Affirmed B3 (sf)
Moody's has also affirmed the ratings on the following notes:
Cl. E-1, Affirmed Caa3 (sf); previously on Nov
13, 2014 Affirmed Caa3 (sf)
Cl. E-2, Affirmed Caa3 (sf); previously on Nov
13, 2014 Affirmed Caa3 (sf)
RATINGS RATIONALE
Moody's has upgraded the ratings on the transaction due to rapid
amortization of the underlying collateral due to higher than anticipated
recoveries on certain defaulted assets and the relatively stable credit
quality of the remaining collateral pool as evidenced by WARF and WARR.
Moody's has affirmed the ratings on the transaction because its
key transaction metrics are commensurate with existing ratings.
The affirmation is the result of Moody's on-going surveillance
of commercial real estate collateralized debt obligation (CRE CDO &
Re-Remic) transactions.
Crest 2003-2 is backed by a portfolio of: i) commercial mortgage
backed securities (CMBS) (83.9% of the collateral pool balance);
ii) credit tenant leases (CTL) (10.3%); and iii) CRE
CDOs (5.8%). As of the trustee's 30 June 2015
report, the aggregate note balance of the transaction, including
preferred shares, is $105.9 million, compared
to $325.0 million issuance. The pay-down was
the result of a combination of regular amortization, resolution
of defaulted collateral, and the redirection of interest to pay
principal, resulting from the failure of certain par value tests.
The pool contains fourteen assets totaling $32.5 million
(50.7% of the collateral pool balance) that are listed as
defaulted securities as of the trustee's 30 June 2015 report.
Thirteen of these assets (88.6% of the defaulted balance)
are CMBS and one asset is a CRE CDO (11.4%). While
there have been limited realized losses on the underlying collateral to
date, Moody's does expect moderate/high losses to occur on the defaulted
securities.
Moody's has identified the following as key indicators of the expected
loss in CRE CDO & Re-Remic 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 & Re-Remic
pool. Moody's has updated its assessments for the collateral
it does not rate. The rating agency modeled a bottom-dollar
WARF of 4679, compared to 4475 at last review. The current
ratings on the Moody's-rated collateral and the assessments
of the non-Moody's rated collateral follow: Aaa-Aa3
(15.7%, compared to 18.9% at last review);
A1-A3 (12.6%, compared to 9.1%
at last review); Baa1-Baa3 (4.6%, compared
to 6.0% at last review); Ba1-Ba3 (7.3%,
compared to 10.1% at last review); B1-B3 (14.8%,
compared to 10.6% at last review); and Caa1-Ca/C
(45.0%, compared to 45.4% at last review).
Moody's modeled a WAL of 2.9 years, compared to 2.4
years at last review. The WAL is based on assumptions about extensions
on the loans backing the underlying CMBS collateral.
Moody's modeled a fixed WARR of 7.4%, compared
to 6.7% at last review.
Moody's modeled a MAC of 6.5%, compared to 6.1%
at last review.
Methodology Underlying the Rating Action:
The principal methodology used in this rating 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 some of 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
rates of the underlying collateral and credit assessments. Holding
all other key parameters static, reducing the recovery rate by 5.0%
would result in modeled rating movement on the rated notes of zero to
one notches downward (e.g., one notch down implies
a ratings movement of Baa3 to Ba1). Increasing the recovery rate
by 5.0% would result in an average modeled rating movement
on the rated notes of one to two notches upward (e.g.,
one notch upward implies a ratings movement of 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.
Aaron Dresher
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
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 two classes of notes issued by Crest 2003-2
