New York, August 17, 2018 -- Moody's Investors Service ("Moody's") upgrades the ratings
on the following notes issued by Crest 2003-2, Ltd.:
Cl. E-1, Upgraded to Caa2 (sf); previously on
Mar 17, 2017 Affirmed Caa3 (sf)
Cl. E-2, Upgraded to Caa2 (sf); previously on
Mar 17, 2017 Affirmed Caa3 (sf)
The Cl. E-1 and E-2 notes are referred to herein
as the "Rated Notes."
RATINGS RATIONALE
Moody's has upgraded the ratings on the Rated Notes due to higher than
anticipated recoveries on high credit risk assets since last review,
including defaulted collateral, resulting in greater certainty of
re-payment to the Cl. E-1 and Cl. E-2
notes. This more than offset the increase in credit risk of the
remaining collateral pool, as evidenced by WARF and WARR.
The rating action is the result of Moody's on-going surveillance
of commercial real estate collateralized debt obligation (CRE CDO CLO)
transactions.
Crest 2003-2, Ltd. is a static cash transaction backed
by a portfolio of: i) commercial mortgage backed securities (CMBS)
(66.8% of the collateral pool balance); iii) credit
tenant leases (CTL) (28.0%); and ii) CRE CDOs (5.2%)
As of the July 31, 2018 note valuation report, the aggregate
note balance of the transaction, including preferred shares,
is $63.1 million, compared to $325.0
million at issuance.
The pool contains seven assets totaling $7.7 million (51.7%
of the collateral pool balance) that are listed as defaulted securities
as of the trustee's July 31, 2018 report. While there have
been limited realized losses on the underlying collateral to date,
Moody's does expect low-to-moderate losses to occur on the
defaulted securities.
Moody's has identified the following parameters as key indicators of the
expected loss within CRE CLO transactions: the weighted average
rating factor (WARF); the weighted average life (WAL); the weighted
average recovery rate (WARR); number of asset obligors; and
pair-wise asset correlation. These parameters are typically
modeled as actual parameters for static deals and as covenants for managed
deals.
For modeling purposes, Moody's used the following base-case
assumptions:
WARF is a primary measure of the credit quality of a CRE CDO pool.
Moody's has updated its assessments for the collateral it does not rate.
The rating agency modeled a bottom-dollar WARF of 4330, compared
to 3187 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 (43.9%, compared to 35.0%
at last review); A1-A3 (0.0%, compared
to 16.0% at last review); Ba1-Ba3 (12.4%,
compared to 12.7% at last review); B1-B3 (0.0%,
compared to 9.8% at last review); Caa1-Ca/C
(43.7%, compared to 26.0% at last review).
Moody's modeled a WAL of 4.9 years, compared to 2.4
years at last review. The greater than expected reduction in WAL
is due to the repayment and/or default of shorter pay obligations.
Moody's modeled a fixed WARR of 9.1%, compared to
11.6% at last review.
Moody's modeled 8 obligors, compared to 11 at last review.
Moody's modeled a MAC of 3.2%, compared to 4.7%
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 June 2017. Please see the Rating
Methodologies page on www.moodys.com for a copy of this
methodology.
Factors That Would Lead to an Upgrade or Downgrade of the Ratings:
The performance of the Rated Notes is subject to uncertainty. The
performance of the Rated Notes is sensitive to the performance of the
underlying portfolio, which in turn depends on economic and credit
conditions that may change. The servicing decisions and management
of the transaction will also affect the performance of the Rated Notes.
Together with the set of modeling assumptions above, Moody's conducted
an additional sensitivity analysis, which was a component in determining
the rating assigned to the Rated Notes. This sensitivity analysis
includes increased default probability relative to the base-case.
Primary sources of assumption uncertainty are the extent of growth in
the current macroeconomic environment. Commercial real estate property
values are continuing to move in a positive direction along with a rise
in investment activity and stabilization in core property type performance.
Limited new construction, moderate job growth and the decreased
cost of debt and equity capital have aided this improvement.
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 credit rating action on the support provider and in relation to
each particular credit 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 credit rating action,
and whose ratings may change as a result of this credit 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.
Scarlett Shao
AVP - Analyst
Structured Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Deryk Meherik
Senior Vice President/Manager
Structured Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
