Approximately $248.8 million of structured securities affected
New York, November 28, 2012 -- Moody's has upgraded the ratings of three classes and affirmed the ratings
of six classes of Notes issued by Sorin Real Estate CDO IV Ltd.
The upgrades are due to improvement in underlying collateral performance
as evidenced by transition in Moody's weighted average rating factor (WARF),
weighted average recovery rate (WARR), and a lower balance of defaulted
securities since last review. The affirmations are due to key transaction
parameters performing within levels commensurate with the existing ratings
levels. 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.
Moody's rating action is as follows:
Cl. A-1, Upgraded to Baa1 (sf); previously on
Dec 15, 2010 Downgraded to Baa2 (sf)
Cl. A-2, Upgraded to B1 (sf); previously on Dec
15, 2010 Downgraded to Caa1 (sf)
Cl. A-3, Upgraded to B3 (sf); previously on Dec
15, 2010 Downgraded to Caa2 (sf)
Cl. B, Affirmed at Caa3 (sf); previously on Dec 15,
2010 Downgraded to Caa3 (sf)
Cl. C, Affirmed at Ca (sf); previously on Dec 15,
2010 Downgraded to Ca (sf)
Cl. D, Affirmed at C (sf); previously on Dec 15,
2010 Downgraded to C (sf)
Cl. E, Affirmed at C (sf); previously on Dec 15,
2010 Downgraded to C (sf)
Cl. F, Affirmed at C (sf); previously on Dec 15,
2010 Downgraded to C (sf)
Cl. G, Affirmed at C (sf); previously on Dec 15,
2010 Downgraded to C (sf)
RATINGS RATIONALE
Sorin Real Estate CDO IV Ltd. is a static (the reinvestment period
ended in October 2011) cash transaction backed by a portfolio of commercial
mortgage backed securities (CMBS) (50.3% of the pool balance),
B-Note debt and rake bonds (30.3%), whole loans
(17.6%), and CRE CDO bonds (1.8%).
As of the October 29, 2012 Note Valuation report, the aggregate
Note balance of the transaction, including Income Notes, has
decreased to $286.4 million from $400.0 million
at issuance, as a result of the paydown directed to the Class A-1
Notes from regular amortization of collateral, resolution and subsequent
sales of defaulted collateral, and interest proceeds directed to
senior classes as principal proceeds as a result of failing one or more
par value and interest coverage tests. The transaction is currently
under-collateralized by $52.9 million, up from
$26.6 million as of last review. However, the
transaction's key parameters are compensating for this change in
collateralization.
There are six assets with par balance of $48.6 million (20.8%
of the current pool balance) that are considered defaulted securities
as of the October 29, 2012 Note Valuation report, compared
to nine defaulted securities totaling $77.8 million par
amount (25.0%) at last review. Moody's does
expect moderate to high losses to occur from these defaulted securities
once they are realized.
Moody's has identified the following parameters as key indicators of the
expected loss within CRE CDO transactions: WARF, weighted
average life (WAL), WARR, and Moody's asset correlation (MAC).
These parameters are typically modeled 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.
We have completed updated assessments for the non-Moody's rated
collateral. The bottom-dollar WARF is a measure of the default
probability within a collateral pool. Moody's modeled a bottom-dollar
WARF of 3,922 compared to 4,489 at last review. The
current distribution of Moody's rated collateral and assessments
for non-Moody's rated collateral is as follows: Aaa-Aa3
(16.1% compared to 16.3% at last review),
A1-A3 (5.6% compared to 0.0% at last
review),Baa1-Baa3 (9.8% compared to 13.2%
at last review), Ba1-Ba3 (12.1% compared to
3.4% at last review), B1-B3 (6.0%
compared to 9.8% at last review), and Caa1-Ca/C
(50.4% compared to 57.3% at last review).
Moody's modeled to a WAL of 3.0 years, compared to 3.2
years at last review. The current WAL is based on the assumption
about extensions.
Moody's modeled a fixed 27.3% WARR, compared
to 24.5% at last review.
Moody's modeled a MAC of 11.2%, compared to 16.3%
at last review.
Moody's review incorporated CDOROM® v2.8, one of Moody's
CDO rating models, which was released on March 22, 2012.
The cash flow model, CDOEdge® v3.2.1.2,
was used to analyze the cash flow waterfall and its effect on the capital
structure of the deal.
Changes in any one or combination of the key parameters may have rating
implications on certain classes of rated notes. However,
in many instances, a change in key parameter assumptions in certain
stress scenarios may be offset by a change in one or more of the other
key parameters. In general, the rated notes are particularly
sensitive to changes in recovery rate assumptions. Holding all
other key parameters static, changing the recovery rate assumption
down from 27.3% to 17.3% or up to 37.3%
would result in modeled rating movement on the rated Notes of 0 to 2 notches
downward and 0 to 3 notches upward, respectively.
The performance expectations for a given variable indicate Moody's forward-looking
view of the likely range of performance over the medium term. From
time to time, Moody's may, if warranted, change these
expectations. Performance that falls outside the given range may
indicate that the collateral's credit quality is stronger or weaker than
Moody's had anticipated when the related securities ratings were issued.
Even so, a deviation from the expected range will not necessarily
result in a rating action nor does performance within expectations preclude
such actions. The decision to take (or not take) a rating action
is dependent on an assessment of a range of factors including, but
not exclusively, the performance metrics.
Primary sources of assumption uncertainty are the extent of growth in
the current macroeconomic environment and commercial real estate property
markets. 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 and moderate job growth have aided this improvement.
However, a consistent upward trend will not be evident until the
volume of investment activity steadily increases for a significant period,
non-performing properties are cleared from the pipeline,
and fears of a Euro area recession are abated.
The hotel sector is performing strongly with eight straight quarters of
growth and the multifamily sector continues to show increases in demand
with a growing renter base and declining home ownership. Slow recovery
in the office sector continues with minimal additions to supply.
However, office demand is closely tied to employment, where
growth remains slow and employers are considering decreases in the leased
space per employee. Also, primary urban markets are outperforming
secondary suburban markets. Performance in the retail sector continues
to be mixed with retail rents declining for the past four years,
weak demand for new space and lackluster sales driven by discounting and
promotions. However, rising wages and reduced unemployment,
along with increased consumer confidence, is helping to spur consumer
spending resulting in increased sales. Across all property sectors,
the availability of debt capital continues to improve with robust securitization
activity of commercial real estate loans supported by a monetary policy
of low interest rates.
Moody's central global macroeconomic scenario maintains its forecast of
relatively robust growth in the US and an expectation of a mild recession
in the euro area for 2012. Downside risks remain significant,
and elevated downside risks and their materialization could pose a serious
threat to the outlook. Major downside risks include: a deeper
than expected recession in the euro area; the potential for a hard
landing in major emerging markets; an oil supply shock; and
material fiscal tightening in the US given recent political gridlock.
Healthy but below-trend growth in GDP is expected through the rest
of this year and next with risks trending to the downside.
The methodologies used in this rating were "Moody's Approach to Rating
SF CDOs" published in May 2012, and "Moody's Approach to Rating
Commercial Real Estate CDOs" published in July 2011. Please see
the Credit Policy page on www.moodys.com for a copy of these
methodologies.
REGULATORY DISCLOSURES
The Global Scale Credit Ratings on this press release that are issued
by one of Moody's affiliates outside the EU are endorsed by Moody's
Investors Service Ltd., One Canada Square, Canary Wharf,
London E 14 5FA, UK, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that has issued a particular Credit Rating is available on www.moodys.com.
For ratings issued on a program, series or category/class of debt,
this announcement provides relevant 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 relevant 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 relevant 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.
Information sources used to prepare the rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, confidential and proprietary Moody's Investors
Service information, and confidential and proprietary Moody's
Analytics information.
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 considers the quality of information available on the rated
entity, obligation or credit satisfactory for the purposes of issuing
a rating.
Moody's adopts all necessary measures so that the information it
uses in assigning a rating is of sufficient quality and from sources Moody's
considers to be reliable including, when appropriate, independent
third-party sources. However, Moody's is not
an auditor and cannot in every instance independently verify or validate
information received in the rating process.
Please see the ratings disclosure page on www.moodys.com
for general disclosure on potential conflicts of interests.
Please see the ratings disclosure page on www.moodys.com
for information on (A) MCO's major shareholders (above 5%) and
for (B) further information regarding certain affiliations that may exist
between directors of MCO and rated entities as well as (C) the names of
entities that hold ratings from MIS that have also publicly reported to
the SEC an ownership interest in MCO of more than 5%. A
member of the board of directors of this rated entity may also be a member
of the board of directors of a shareholder of Moody's Corporation;
however, Moody's has not independently verified this matter.
Please see Moody's Rating Symbols and Definitions on the Rating Process
page on www.moodys.com for further information on the meaning
of each rating category and the definition of default and recovery.
Please see ratings tab on the issuer/entity page on www.moodys.com
for the last rating action and the rating history.
The date on which some ratings were first released goes back to a time
before Moody's ratings were fully digitized and accurate data may not
be available. Consequently, Moody's provides a date that
it believes is the most reliable and accurate based on the information
that is available to it. Please see the ratings disclosure page
on our website www.moodys.com for further information.
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.
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
VP - Senior Credit Officer
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 three and affirms six classes of Sorin Real Estate CDO IV
