Moody's also affirms the ratings of two classes of notes
New York, May 07, 2014 -- Moody's Investors Service has upgraded the ratings on the following notes
issued by Crest 2003-2:
Cl. C-1, Upgraded to A3 (sf); previously on Jul
24, 2013 Upgraded to Baa3 (sf)
Cl. C-2, Upgraded to A3 (sf); previously on Jul
24, 2013 Upgraded to Baa3 (sf)
Cl. D-1, Upgraded to B3 (sf); previously on Jul
24, 2013 Affirmed Caa1 (sf)
Cl. D-2, Upgraded to B3 (sf); previously on Jul
24, 2013 Affirmed Caa1 (sf)
Moody's has also affirmed the ratings on the following notes:
Cl. E-1, Affirmed Caa3 (sf); previously on Jul
24, 2013 Affirmed Caa3 (sf)
Cl. E-2, Affirmed Caa3 (sf); previously on Jul
24, 2013 Affirmed Caa3 (sf)
RATINGS RATIONALE
Moody's has upgraded the ratings of four classes of notes due to
rapid amortization of senior classes resulting from the payoff of high
credit risk collateral, combined with an improved pool weighted
average rating factor (WARF) since last review on the remaining assets.
This has more than offset the reduction in Moody's weighted average
recovery rate (WARR) and slow-pay profile weighted average life
(WAL). Moody's has affirmed the ratings of two classes of
notes because the key transaction metrics are commensurate with the existing
ratings. The rating actions are the result of Moody's on-going
surveillance of commercial real estate collateralized debt obligation
(CRE CDO and Re-REMIC) transactions.
Crest 2003-2 is a static cash transaction backed by a portfolio
of commercial mortgage backed securities (CMBS) (95.1% of
the pool balance) and commercial real estate CDOs (4.9%).
As of the March 31, 2014 trustee report, the aggregate Note
balance of the transaction, including preferred shares was $139.3
million compared to $325 million at issuance, as a result
of regular amortization of the collateral pool with the paydowns directed
to the senior most outstanding class of notes.
There are thirteen assets with a par balance of $36.9 million
(36.1% of the collateral pool balance) that are considered
defaulted securities as of the March 31, 2014 trustee report.
All of these assets are CMBS. Moody's does expect significant losses
to occur from these defaulted securities once they are realized.
Moody's has identified the following as key indicators of the expected
loss in CRE CDO transactions: the WARF, the WAL, the
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 collateral it does not
rate. The rating agency modeled a bottom-dollar WARF of
3789, compared to 4410 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
and 11.8% compared to 4.1% at last review,
A1-A3 and 9.4% compared to 2.5% at
last review, Baa1-Baa3 and 14.3% compared to
19.2% at last review, Ba1-Ba3 and 13.6%
compared to 13.4% at last review, B1-B3 and
12.7% compared to 18.2% at last review,
Caa1-Ca/C and 38.2% compared to 42.6%
at last review.
Moody's modeled a WAL of 2.8 years, compared to 3.0
years at last review. The WAL is based on assumptions about extensions
on the underlying loans within the CMBS collateral.
Moody's modeled a fixed WARR of 5.3%, compared
to 11.7% at last review.
Moody's modeled a MAC of 11.8%, compared to
9.3% 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 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:
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. Increasing
the recovery rates by 5% would result in an average modeled rating
movement on the rated notes of zero to one notch (e.g.,
one notch up implies a ratings movement of Ba1 to Baa3). Decreasing
the recovery rates by 5% would result in no modeled rating movement
on the rated notes.
The primary sources of uncertainty in Moody's assumptions are the
extent of growth in the current macroeconomic environment given the weak
recovery and 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.
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.
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.
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.
Jocelyn Delifer
Asst Vice President - 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
Michael Gerdes
MD - Structured Finance
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 the ratings of four classes of notes issued by Crest 2003-2
