/raid1/www/Hosts/bankrupt/TCR

/raid1/www/Hosts/bankrupt/TCR_Public/100919.mbx T R O U B L E D C O M P A N Y R E P O R T E R Sunday, September 19, 2010, Vol. 14, No. 260 Headlines ABACUS LTD: S&P Downgrades Ratings on Various Tranches ARCC COMMERCIAL: Moody's Upgrades Ratings on Various Classes ARES VIII: Moody's Upgrades Ratings on Various Classes of Notes BANC OF AMERICA: S&P Puts Ratings on 13 Certs. On Negative Watch BEAR STEARNS: Moody's Downgrades Ratings on Eight Certificates BERNARD NATIONAL: S&P Withdraws Ratings on 14 CDO Transactions CABELA'S CREDIT: Fitch Assigns 'BB+sf/LS3' Rating on Class D Notes CBA COMMERCIAL: S&P Downgrades Rating on Class M-4 Certs. to 'D' CRYSTAL RIVER: Moody's Junks $130 Million Floating Rate Notes DEUTSCHE BANK: Moody's Takes Rating Actions on Various Tranches FIRST UNION: S&P Downgrades Ratings on Seven 2001-C3 Securities FMC REAL: Deterioration of Credit Quality Cues Moody's Junk Rating GMAC COMMERCIAL: S&P Cuts Ratings on 9 Classes of Mortgage Certs. HOUSTON SPORTS: S&P Downgrades Rating on Bonds to 'B' LASALLE COMMERCIAL 2006-MF2: Moody's Junks $288 Mil. Class A Cert. LASALLE COMMERCIAL 2006-MF3: Moody's Junks $295MM Class A Cert. LASALLE COMMERCIAL 2006-MF4: Moody's Holds Junks Ratings on Certs. LATITUDE CLO: Moody's Upgrades Ratings on Five Classes of Notes LENOX HILL: Moody's Raises Ratings on Series 2001 Bonds From 'Ba1' LUNAR FUNDING: S&P Withdraws Ratings on Various Classes of Notes MERRILL LYNCH: Moody's Junks Seven Class Certificates MORGAN STANLEY: Moody's Takes Rating Actions on Various CDO Deals MORGAN STANLEY: S&P Downgrades Ratings on Notes to 'CC' MOTOROLA INC: S&P Assigns 'BB+' Rating on Trust Certificates MOTOROLA INC: S&P Puts BB+ Rating on Corporate Backed Trust Certs. MT SPOKANE: Moody's Confirms Ratings on Subordinate Notes NEWSTAR TRUST: Fitch Affirms 'BBsf/LS4' Rating on Class E Notes NEWSTAR TRUST: Fitch Cuts $13.7MM of E Notes to 'BBsf/LS5' NEWSTAR TRUST: Fitch Cuts $24MM of Class E Notes to 'CCsf/RR5' NEXTSTUDENT MASTER: Fitch Withdraws 'B' Rating on Two Notes NEXTSTUDENT MASTER: Moody's Downgrades Ratings on 23 Classes NORTH STREET: S&P Downgrades Class G Notes Ratings to 'CC' OCWEN RESIDENTIAL: Moody's Cuts Ratings on Three 1998-R1 Certs. PNC MORTGAGE: Moody's Junks Three Certificate Classes RFC CDO: Deterioration in Credit Quality Cues Moody's Junk Rating ROGER WILLIAMS: S&P Lowers $13MM Reveunue Bonds Ratings to BB- SALOMON BROTHERS: Moody's Downgrades Ratings on Six Certificates SECURTIZED ASSET: Moody's Puts Junk Class M-1 Cert. On Review ST. JOSEPH HEALTH: S&P Downgrades Rating on $18.7MM Bonds to 'B' T2 INCOME: Improved Credit Quality Cues Moody's Rating Upgrade TIERS CORPORATE: S&P Assigns 'BB+' Ratings on Bond-Backed Certs. TRAPEZA CDO: Moody's Corrects Ratings Assigned on Class A-2 Notes TRAPEZA CDO: Moody's Downgrades Ratings on Fives Classes of Notes TRAPEZA EDGE: Moody's Downgrades Ratings on Two Classes of Notes * Moody's Downgrades Rating on City of Salem's Bonds to 'Ba2' * S&P Downgrades Ratings on 13 Tranches CDO Transactions * S&P Downgrades Ratings on Eight of US CDO Transactions * S&P Downgrades Ratings on Six Tranches of CDO Transactions * S&P Puts Ratings on 51 Tranches on CreditWatch Positive ********* ABACUS LTD: S&P Downgrades Ratings on Various Tranches ------------------------------------------------------ Standard & Poor's Ratings Services lowered its ratings on 12 tranches from ABACUS Ltd.'s series 2004-1, 2004-2, 2005-1, 2005-2, and 2005-3 all synthetic collateralized debt obligation transactions. At the same time, S&P affirmed its ratings on the nine outstanding classes from these transactions. The downgrades follow a number of write-downs in the transactions' underlying reference portfolios, which have caused the notes to incur principal losses. ABACUS 2004-1, Ltd. Rating ------ Class To From ----- -- ---- Class A CC (sf) CCC- (sf) ABACUS 2004-2, Ltd. Rating ------ Class To From ----- -- ---- Class A CCC- (sf) CCC- (sf) Class B CC (sf) CCC- (sf) ABACUS 2005-1, Ltd. Rating ------ Class To From ----- -- ---- A-1 CC (sf) CCC (sf) A-2 D (sf) CCC- (sf) B D (sf) CCC- (sf) C D (sf) CCC- (sf) D D (sf) CCC- (sf) ABACUS 2005-2, Ltd. Rating ------ Class To From ----- -- ---- A-1 CCC- (sf) CCC- (sf) A-2 CCC- (sf) CCC- (sf) A-3 CC (sf) CCC- (sf) ABACUS 2005-3, Ltd. Rating ------ Class To From ----- -- ---- A-1 CCC- (sf) CCC- (sf) A-2 CCC- (sf) CCC- (sf) B CCC- (sf) CCC- (sf) B Series 2 CCC- (sf) CCC- (sf) C CCC- (sf) CCC- (sf) C Series2 CCC- (sf) CCC- (sf) D CC (sf) CCC- (sf) D Series2 CC (sf) CCC- (sf) D Series3 CC (sf) CCC- (sf) E D (sf) CCC- (sf) ARCC COMMERCIAL: Moody's Upgrades Ratings on Various Classes ------------------------------------------------------------ Moody's Investors Service announced that it has upgraded the ratings of these notes issued by ARCC Commercial Loan Trust 2006: -- US$14,000,000 Class A-1B Floating Rate Notes Due 2019, Upgraded to Aa1 (sf); previously on August 18, 2009 Downgraded to Aa2 (sf); -- US$33,000,000 Class A-2B Floating Rate Notes Due 2019, Upgraded to Aaa (sf); previously on August 18, 2009 Downgraded to Aa1 (sf); -- US$23,000,000 Class B Floating Rate Deferrable Interest Notes Due 2019, Upgraded to Aa3 (sf); previously on August 18, 2009 Downgraded to A1 (sf); -- US$44,000,000 Class C Floating Rate Deferrable Interest Notes Due 2019, Upgraded to Baa2 (sf); previously on August 18, 2009 Upgraded to Baa3 (sf); -- US$32,000,000 Class D Floating Rate Deferrable Interest Notes Due 2019, Upgraded to Ba3 (sf); previously on August 18, 2009 Confirmed at B1 (sf); Ratings Rationale According to Moody's, the rating actions taken on the notes result primarily from the delevering of the Class A-1A Notes, Class A-1A VFN Notes and Class A-2A Notes, which have been paid down by approximately 32% or $64.8 million since the last rating action in August 2009. In addition to principal pay downs, excess spread is being diverted to pay down Class A-1A Notes, Class A-1A VFN Notes and Class A-2A Notes as a structural result of the deal incurring positive realized losses from sales and unrealized losses from charged-off loans (such losses being the "Additional Principal Amount"). Due to the impact of revised and updated key assumptions referenced in "Moody's Approach to Rating Collateralized Loan Obligations" and "Annual Sector Review (2009): Global CLOs," key model inputs used by Moody's in its analysis, such as par, weighted average rating factor, diversity score, and weighted average recovery rate, may be different from the trustee's reported numbers. In its base case, Moody's analyzed the underlying collateral pool to have a performing par and principal proceeds of $329 million, defaulted par of $28 million, weighted average default probability of 37.14% (implying a WARF of 6188), a weighted average recovery rate upon default of 34.01%, and a diversity score of 22. These default and recovery properties of the collateral pool are incorporated in cash flow model analysis where they are subject to stresses as a function of the target rating of each CLO liability being reviewed. The default probability is derived from the credit quality of the collateral pool and Moody's expectation of the remaining life of the collateral pool. The average recovery rate to be realized on future defaults is based primarily on the seniority of the assets in the collateral pool. In each case, historical and market performance trends, and collateral manager latitude for trading the collateral are also factors. ARCC Commercial Loan Trust 2006, issued in July 2006, is a collateralized loan obligation backed primarily by a portfolio of senior secured loans, second-lien loans and subordinated loans issued by middle market issuers. Moody's Investors Service did not receive or take into account a third party due diligence report on the underlying assets or financial instruments related to the monitoring of this transaction in the past 6 months. Moody's modeled the transaction using the Binomial Expansion Technique, as described in Section 2.3.2.1 of the "Moody's Approach to Rating Collateralized Loan Obligations" rating methodology published in August 2009. For securities whose default probabilities are assessed through credit estimates, Moody's applied additional default probability stresses by assuming an equivalent of Caa3 for CEs that were not updated within the last 15 months, a 1.5 notch-equivalent assumed downgrade for CEs last updated between 12-15 months ago, and a 0.5 notch-equivalent assumed downgrade for CEs last updated between 6- 12 months ago. For each CE where the related exposure constitutes more than 3% of the collateral pool, Moody's applied a 2-notch equivalent assumed downgrade (but only on the CEs representing in aggregate the largest 30% of the pool) in lieu of the aforementioned stresses. Notwithstanding the foregoing, in all cases the lowest assumed rating equivalent is Caa3. In addition, to the base case analysis described above, Moody's also performed a number of sensitivity analyses to test the impact on all rated notes, including these: 1. Various default probabilities to capture potential defaults in the underlying portfolio. 2. A range of recovery rate assumptions for all assets to capture variability in recovery rates. Below is a summary of the impact of different default probabilities (expressed in terms of WARF levels) on all rated notes (shown in terms of the number of notches' difference versus the current model output, whereby a positive difference corresponds to lower expected losses), assuming that all other factors are held equal: Moody's Adjusted WARF -- 20% (4950) -- Class A-1A: 0 -- Class A-1A VFN: 0 -- Class A-1B: +1 -- Class A-2A: 0 -- Class A-2B: 0 -- Class B: +2 -- Class C: +2 -- Class D: +2 Moody's Adjusted WARF + 20% (7426) -- Class A-1A: 0 -- Class A-1A VFN: 0 -- Class A-1B: -3 -- Class A-2A: 0 -- Class A-2B: -3 -- Class B: -3 -- Class C: -4 -- Class D: -4 Below is a summary of the impact of different recovery rate levels on all rated notes (shown in terms of the number of notches' difference versus the current model output, whereby a positive difference corresponds to lower expected losses), assuming that all other factors are held equal: Moody's Adjusted WARR + 2% (36.01%)) -- Class A-1A: 0 -- Class A-1A VFN: 0 -- Class A-1B: +1 -- Class A-2A: 0 -- Class A-2B: 0 -- Class B: +1 -- Class C: +1 -- Class D: +1 Moody's Adjusted WARR - 2% (32.01%) -- Class A-1A: 0 -- Class A-1A VFN: 0 -- Class A-1B: 0 -- Class A-2A: 0 -- Class A-2B: 0 -- Class B: 0 -- Class C: -1 -- Class D: 0 Moody's notes that this transaction is subject to a high level of macroeconomic uncertainty, as evidenced by 1) uncertainties of credit conditions in the general economy and 2) the large concentration of speculative-grade debt maturing between 2012 and 2014 which may create challenges for issuers to refinance. CDO notes' performance may also be impacted by 1) the managers' investment strategies and behavior, 2) divergence in legal interpretation of CDO documentation by different transactional parties due to embedded ambiguities, and 3) potential additional expected loss associated with swap agreements in CDOs as a result of recent U.S. bankruptcy court ruling on Lehman swap termination in the Dante case. Sources of additional performance uncertainties are described below: 1) Delevering: The main source of uncertainty in this transaction is whether delevering from unscheduled principal proceeds will continue and at what pace. Delevering may accelerate due to high prepayment levels in the loan market and/or collateral sales by the manager, which may have significant impact on the notes' ratings. 2) Recovery of charged-off assets: Market value fluctuations in charged-off assets reported by the manager and those assumed to be defaulted by Moody's may create volatility in the deals' Additional Principal Amount level. Further, the timing of recoveries and the manager's decision to work out versus selling charged-off assets create additional uncertainties. Moody's analyzed charged-off recoveries assuming the lower of the market price and the recovery rate in order to account for potential volatility in market prices. 3) Exposure to credit estimates: The deal is exposed to a approximately 92% of securities whose default probabilities are assessed through credit estimates. In the event that Moody's is not provided the necessary information to update the credit estimates in a timely fashion, the transaction may be impacted by any default probability stresses Moody's may assume in lieu of updated credit estimates. Moody's also conducted stress tests to assess the collateral pool's concentration risk in obligors bearing a credit estimate that constitute more than 3% of the collateral pool. ARES VIII: Moody's Upgrades Ratings on Various Classes of Notes --------------------------------------------------------------- Moody's Investors Service announced that it has upgraded the ratings of these notes issued by Ares VIII CLO Ltd.: -- US$233,900,000 Class A-1-A Senior Secured Notes Due 2016 (current outstanding balance of $205,688,076), Upgraded to Aa3 (sf); previously on June 11, 2009 Downgraded to A1 (sf); -- US$22,600,000 Class A-1-B Senior Secured Notes Due 2016 (current outstanding balance of $19,874,094), Upgraded to Aa3 (sf); previously on June 11, 2009 Downgraded to A1 (sf); -- US$17,000,000 Class A-3 Senior Secured Notes Due 2016, Upgraded to A1 (sf); previously on June 11, 2009 Downgraded to A2 (sf); -- US$23,650,000 Class B-1 Senior Secured Deferrable Interest Notes Due 2016, Upgraded to Baa3 (sf); previously on June 11, 2009 Confirmed at Ba1 (sf); -- US$9,350,000 Class B-2 Senior Secured Deferrable Interest Notes Due 2016, Upgraded to Baa3 (sf); previously on June 11, 2009 Confirmed at Ba1 (sf); -- US$19,200,000 Class C-1 Senior Secured Deferrable Interest Notes Due 2016, Upgraded to B3 (sf); previously on June 11, 2009 Downgraded to Caa1 (sf); -- US$13,800,000 Class C-2 Senior Secured Deferrable Interest Notes Due 2016, Upgraded to B3 (sf); previously on June 11, 2009 Downgraded to Caa1 (sf); -- US$6,750,000 Class D-1 Subordinated Secured Deferrable Interest Notes Due 2016 (current outstanding balance of $3,347,032), Upgraded to Caa3 (sf); previously on June 11, 2009 Downgraded to C (sf); -- US$3,000,000 Class D-2 Subordinated Secured Deferrable Interest Notes Due 2016 (current outstanding balance of $1,487,570), Upgraded to Caa3 (sf); previously on June 11, 2009 Downgraded to C (sf); -- US$1,250,000 Class D-3 Subordinated Secured Deferrable Interest Notes Due 2016 (current outstanding balance of $619,821), Upgraded to Caa3 (sf); previously on June 11, 2009 Downgraded to C (sf); -- US$8,000,000 Class 1 Composite Securities Due 2016 (current Rated Balance of $3,334,205), Upgraded to Ba3 (sf); previously on June 11, 2009 Downgraded to B1 (sf); -- US$4,000,000 Class 3 Composite Securities Due 2016 (current Rated Balance of $0), Withdrawn; previously on June 11, 2009 Downgraded to Baa2 (sf); -- US$2,750,000 Class 5 Composite Securities Due 2016 (current Rated Balance of $0), Withdrawn; previously on June 11, 2009 Downgraded to Baa2 (sf); -- US$13,000,000 Class 7 Composite Securities Due 2016 (current Rated Balance of $6,901,362), Upgraded to Baa1 (sf); previously on June 11, 2009 Downgraded to Ba1 (sf). Ratings Rationale According to Moody's, the rating actions taken on the notes result primarily from improvement in the credit quality of the underlying portfolio and an increase in the overcollateralization ratios of the notes since the last rating action in June 2009. Improvement in the credit quality is observed through an improvement in the average credit rating (as measured by the weighted average rating factor) and a decrease in the proportion of securities from issuers rated Caa1 and below. In particular, as of the latest trustee report dated August 19, 2010, the weighted average rating factor is currently 2527 compared to 3063 in the June 2009 report, and securities rated Caa1/CCC+ or lower make up approximately 8.81% of the underlying portfolio versus 19.24% in June 2009. Additionally, defaulted securities total about $6.9 million of the underlying portfolio compared to $11 million in June 2009. The overcollateralization ratios of the rated notes have also increased since the last rating action. The Class A, Class B, Class C and Class D overcollateralization ratios are reported at 123.28%, 113.99%, 106.01% and 104.7%, respectively, versus June 2009 levels of 117.54%, 108.83%, 101.22% and 99.89%, respectively, and all related overcollateralization tests are currently in compliance. Moody's also notes that the Class C and Class D Notes are no longer deferring interest and that all previously deferred interest has been paid in full. As the reinvestment period for the deal ended in May 2010, the senior notes are expected to benefit from delevering going forward. The Class 3 and Class 5 Composite Securities were exchanged for their underlying components at the noteholders' request. As a result, the ratings of the notes have been withdrawn. Due to the impact of revised and updated key assumptions referenced in "Moody's Approach to Rating Collateralized Loan Obligations" and "Annual Sector Review (2009): Global CLOs," key model inputs used by Moody's in its analysis, such as par, weighted average rating factor, diversity score, and weighted average recovery rate, may be different from the trustee's reported numbers. In its base case, Moody's analyzed the underlying collateral pool to have a performing par and principal proceeds of $500 million, defaulted par of $6.9 million, weighted average default probability of 22.54% (implying a WARF of 3289), a weighted average recovery rate upon default of 42.28%, and a diversity score of 57. These default and recovery properties of the collateral pool are incorporated in cash flow model analysis where they are subject to stresses as a function of the target rating of each CLO liability being reviewed. The default probability is derived from the credit quality of the collateral pool and Moody's expectation of the remaining life of the collateral pool. The average recovery rate to be realized on future defaults is based primarily on the seniority of the assets in the collateral pool. In each case, historical and market performance trends, and collateral manager latitude for trading the collateral are also factors. Ares VIII Ltd., issued in 2004, is a collateralized loan obligation backed primarily by a portfolio of senior secured loans. Moody's Investors Service did not receive or take into account a third party due diligence report on the underlying assets or financial instruments related to the monitoring of this transaction in the past 6 months. Moody's modeled the transaction using the Binomial Expansion Technique, as described in Section 2.3.2.1 of the "Moody's Approach to Rating Collateralized Loan Obligations" rating methodology published in August 2009. In addition, to the base case analysis described above, Moody's also performed a number of sensitivity analyses to test the impact on all rated notes, including these: 1. Various default probabilities to capture potential defaults in the underlying portfolio. 2. A range of recovery rate assumptions for all assets to capture variability in recovery rates. Below is a summary of the impact of different default probabilities (expressed in terms of WARF levels) on all rated notes (shown in terms of the number of notches' difference versus the current model output, whereby a positive difference corresponds to lower expected losses), assuming that all other factors are held equal: Moody's Adjusted WARF -- 20% (2631) -- A1A: +2 -- A1B: +2 -- A2: 0 -- A3: +2 -- B1: +3 -- B2: +3 -- C1: +2 -- C2: +2 -- D1: +5 -- D2: +5 -- D3: +5 -- Class 1: +3 -- Class 6: 0 -- Class 7: +1 Moody's Adjusted WARF + 20% (3947) -- A1A: -2 -- A1B: -2 -- A2: -1 -- A3: -2 -- B1: -2 -- B2: -2 -- C1: -1 -- C2: -1 -- D1: -1 -- D2: -1 -- D3: -1 -- Class 1: -1 -- Class 6: 0 -- Class 7: -1 Below is a summary of the impact of different recovery rate levels on all rated notes (shown in terms of the number of notches' difference versus the current model output, whereby a positive difference corresponds to lower expected losses), assuming that all other factors are held equal: Moody's Adjusted WARR + 2% (44.28%) -- A1A: +1 -- A1B: +1 -- A2: 0 -- A3: 0 -- B1: 0 -- B2: +1 -- C1: 0 -- C2: 0 -- D1: +1 -- D2: +1 -- D3: +1 -- Class 1: +1 -- Class 6: 0 -- Class 7: 0 Moody's Adjusted WARR - 2% (40.28%) -- A1A: 0 -- A1B: 0 -- A2: 0 -- A3: -1 -- B1: -1 -- B2: -1 -- C1: -1 -- C2: -1 -- D1: 0 -- D2: 0 -- D3: 0 -- Class 1: 0 -- Class 6: 0 -- Class 7: -1 Moody's notes that this transaction is subject to a high level of macroeconomic uncertainty, as evidenced by 1) uncertainties of credit conditions in the general economy and 2) the large concentration of speculative-grade debt maturing between 2012 and 2014 which may create challenges for issuers to refinance. CDO notes' performance may also be impacted by 1) the managers' investment strategies and behavior, 2) divergence in legal interpretation of CDO documentation by different transactional parties due to embedded ambiguities, and 3) potential additional expected loss associated with swap agreements in CDOs as a result of recent U.S. bankruptcy court ruling on Lehman swap termination in the Dante case. Sources of additional performance uncertainties are described below: 1) Delevering: The main source of uncertainty in this transaction is whether delevering from unscheduled principal proceeds will occur and at what pace. Delevering may accelerate due to high prepayment levels in the [bond/loan] market and/or collateral sales by the manager, which may have significant impact on the notes' ratings. 2) Recovery of defaulted assets: Market value fluctuations in defaulted assets reported by the trustee and those assumed to be defaulted by Moody's may create volatility in the deals' overcollateralization levels. Further, the timing of recoveries and the manager's decision to work out versus selling defaulted assets create additional uncertainties. Moody's analyzed defaulted recoveries assuming the lower of the market price and the recovery rate in order to account for potential volatility in market prices. 3) Long-dated assets: The presence of assets that mature beyond the CLO's legal maturity date exposes the deal to liquidation risk on those assets. Moody's assumes an asset's terminal value upon liquidation at maturity to be equal to the lower of an assumed liquidation value (depending on the extent to which the asset's maturity lags that of the liabilities) and the asset's current market value. BANC OF AMERICA: S&P Puts Ratings on 13 Certs. On Negative Watch ---------------------------------------------------------------- Standard & Poor's Ratings Services placed its ratings on 13 classes of commercial mortgage pass-through certificates from Banc of America Commercial Mortgage Inc.'s series 2003-1 on CreditWatch with negative implications, including two 'AAA (sf)' ratings. The CreditWatch placements reflect S&P's preliminary analysis of interest shortfalls affecting the trust. As part of S&P's monthly surveillance process, Standard & Poor's examined the Sept. 13, 2010, remittance report and observed that interest shortfalls of $778,149 were affecting the trust, which caused the class B (rated 'AAA (sf)') and the classes subordinate to it to experience interest shortfalls. The interest shortfalls reported in the September 2010 remittance period primarily relate to the Lincoln Center Professional Office Building asset ($8.9 million total exposure, 1.0%) and the Etowah Crossing Shopping Center asset ($3.6 million total exposure, 0.4%), two of seven loans and real estate owned assets with the special servicer, ORIX Capital Markets LLC. The master servicer, Bank of America N.A., has made nonrecoverable advance determinations and has stopped advancing interest and principal on the assets. Furthermore, the current remittance report shows that the master servicer recovered $1.2 million of outstanding prior advances on the assets. Based on S&P's recent discussions with the master servicer, it is its understanding that the recovery of previous advances associated with the Lincoln Center Professional Office Building and Etowah Crossing Shopping Center may be reversed in whole or in part, which may result in a restatement of the Sept. 13, 2010, remittance report. S&P will update and/or resolve its CreditWatch placements upon the completion of additional analysis, which will include a review of the restated September 2010 remittance report, as well as an examination of individual property cash flows and specially serviced assets. Should the classes continue to experience interest shortfalls, S&P will likely initiate downgrades. Ratings Placed On Creditwatch Negative Banc of America Commercial Mortgage Inc. Commercial mortgage pass through certificates series 2003-1 Rating ------ Class To From Credit enhancement (%) ----- -- ---- ---------------------- B AAA (sf)/Watch Neg AAA (sf) 19.46 C AAA (sf)/Watch Neg AAA (sf) 17.78 D AA+ (sf)/Watch Neg AA+ (sf) 14.59 E AA (sf)/Watch Neg AA (sf) 13.08 F A+ (sf)/Watch Neg A+ (sf) 11.57 G A (sf)/Watch Neg A (sf) 10.06 H BBB+ (sf)/Watch Neg BBB+ (sf) 8.72 J BBB- (sf)/Watch Neg BBB- (sf) 5.87 K BB+ (sf)/Watch Neg BB+ (sf) 4.87 L BB (sf)/Watch Neg BB (sf) 4.03 M B+ (sf)/Watch Neg B+ (sf) 3.19 N B (sf)/Watch Neg B (sf) 2.52 O B- (sf)/Watch Neg B- (sf) 2.02 BEAR STEARNS: Moody's Downgrades Ratings on Eight Certificates -------------------------------------------------------------- Moody's Investors Service has downgraded the ratings of 8 certificates from two transactions, backed by reperforming residential mortgage loans, issued by Bear Stearns Mortgage Securities Inc. Issuer: Bear Stearns Mortgage Securities Inc. 1996-06 -- B-2, Downgraded to A1 (sf); previously on Oct. 22, 2003 Upgraded to Aaa (sf) -- B-3, Downgraded to Caa3 (sf); previously on Oct. 22, 2003 Upgraded to A2 (sf) -- B-4, Downgraded to Ca (sf); previously on Oct. 22, 2003 Downgraded to Caa2 (sf) Issuer: Bear Stearns Structured Sec Inc. 1997-02 -- 1-B-2, Downgraded to Ba3 (sf); previously on Nov. 6, 1997 Assigned Aa2 (sf) -- 1-B-3, Downgraded to Ca (sf); previously on July 7, 2004 Downgraded to Caa1 (sf) -- 2-B-3, Downgraded to B1 (sf); previously on July 7, 2004 Upgraded to A2 (sf) -- 2-B-4, Downgraded to Ca (sf); previously on July 7, 2004 Upgraded to Ba1 (sf) -- 2-B-5, Downgraded to Ca (sf); previously on Nov. 6, 1997 Assigned B2 (sf) Ratings Rationale The rating actions are a result of the deterioration in the performance of underlying mortgage pools backing the transactions. The collateral backing these transactions consists of fully amortizing loans originated under one of the insurance programs of the U.S. Department of Housing and Urban Development. Following default, these loans were repurchased by HUD and subsequently sold in a series of public auctions. Moody's estimated losses on the underlying mortgage pools by multiplying lifetime pipeline losses expected from the related pools by a factor of 1.75. The lifetime pipeline losses were derived based on lifetime roll rates to default of 85% for 60-day delinquencies, 95% for 90+ day delinquencies, 100% for loans in foreclosure, and 100% for loans where the homes are held-for-sale, each applied with a severity assumption of 90%. To assess the rating implications of the updated loss levels on rated certificates, Moody's analyzed each certificate's loss coverage ratio based on aggregate credit enhancement, which combines subordination (including over-collateralization) and excess spread compared to updated pool losses. The certificates that do not have enough loss coverage ratio to maintain current ratings based on the new loss levels have been downgraded. The primary source of assumption uncertainty is the current macroeconomic environment, in which unemployment remains at high levels, and weakness persists in the housing market. Moody's notes an increasing potential for a double-dip recession, which could cause a further 20% decline in home prices (versus its baseline assumption of roughly 5% further decline). Overall, Moody's assumes a further 5% decline in home prices with stabilization in early 2011, accompanied by continued stress in national employment levels through that timeframe. If expected losses on the each of the collateral pools were to increase by 10%, model implied results indicate that most of the certificates' ratings would remain stable, with the exception of classes B-2 and B-3 from Bear Stearns Mortgage Securities Inc. 1996-06, and class 2-B-3 from Bear Stearns Structured Sec Inc. 1997-02, for each of which model implied results would be one notch lower (A2 versus A1, Ca versus Caa3, and B2 versus B1 respectively). The model implied result will be two notches lower ( B2 versus Ba3 ) for the class 1-B-2 from Bear Stearns Structured Sec Inc. 1997-02. Moody's Investors Service did not receive or take into account a third party due diligence report on the underlying assets or financial instruments related to the monitoring of these transactions in the past 6 months. BERNARD NATIONAL: S&P Withdraws Ratings on 14 CDO Transactions -------------------------------------------------------------- Standard & Poor's Ratings Services withdrew its ratings on the 14 classes from 13 collateralized debt obligation (CDO) transactions. The class A-3b notes from Bernard National Loan Investors Ltd. and the class A-3 notes from Bingham CDO L.P. were wrapped by financial guarantees provided by MBIA Insurance Corp. S&P withdrew its ratings on class A-1MT-i from Whitehawk CDO Funding Ltd., class A-1MM-h from Cheyne High Grade ABS CDO I Ltd., and class A-1MM-e from Davis Square Funding II Ltd. because these notes converted to other series and are no longer outstanding. S&P withdrew its ratings on the other classes following the complete redemption of the notes on their respective payment dates. Ratings withdrawn: Rating Transaction Class To From Bernard National Loan Investors Ltd. A-3b NR AA- (sf) Bingham CDO L.P. A-3 NR BBB (sf) CapitalSource Commer Loan Trust 2006-1 A NR A+ (sf) CoLTS 2005-1 Ltd. D NR B+ (sf) Franklin CLO I Ltd. C NR A+ (sf) Gresham Street CDO Fdg 2003-1 Ltd B NR AAA (sf) Longhorn CDO (Cayman) Ltd. A-2 NR AAA (sf) Longhorn CDO (Cayman) Ltd. A-3 NR AAA (sf) Merritt Fdg Trust Ser 2005-2 A-2 NR AA+ (sf) Navigator CDO 2003 Ltd. A-1 NR AAA (sf) Race Point CLO Ltd. A-1 NR AAA (sf) Whitehawk CDO Funding Ltd. A-1MT-i NR AA (sf) Cheyne HG ABS CDO I Ltd. A-1MM-h NR/NR B(sf)/Watch Neg/A-1+(sf) Davis Sq Fdg II Ltd. A-1MM-e NR/NR CCC+(sf)/A-1+(sf) CABELA'S CREDIT: Fitch Assigns 'BB+sf/LS3' Rating on Class D Notes ------------------------------------------------------------------ Fitch Ratings expects to assign these ratings to Cabela's Credit Card Master Note Trust's asset-backed notes, series 2010-II: -- $212,500,000 class A fixed/floating-rate 'AAAsf/LS1'; -- $20,000,000 class B fixed-rate 'A+sf/LS2'; -- $10,625,000 class C fixed-rate 'BBB+sf/LS2'; -- $6,875,000 class D fixed-rate 'BB+sf/LS3'. Fitch's expected ratings are based on the underlying receivables pool, available credit enhancement, World's Foremost Bank's underwriting and servicing capabilities, and the transaction's legal and cash flow structures, which employ early redemption triggers. The transaction structure is similar to series 2010-I, with credit enhancement totaling 15% for class A, credit enhancement of 7% for the class B, credit enhancement of 2.75% plus an amount from a spread account for the class C, and credit enhancement of an amount from a spread account for the class D notes only. CBA COMMERCIAL: S&P Downgrades Rating on Class M-4 Certs. to 'D' ---------------------------------------------------------------- Standard & Poor's Ratings Services lowered its rating on the class M-4 commercial mortgage pass-through certificate from CBA Commercial Assets' series 2006-2 to 'D (sf)' from 'CCC- (sf)'. The downgrade of the class M-4 certificate reflects a $53,939 principal loss to the outstanding principal balance of the security due to the liquidation of two assets. The remaining principal balance of the certificate was $2,229,060 as of the Aug. 25, 2010, remittance report. As of the Aug. 25, 2010, remittance report, the collateral pool consisted of 200 loans and nine real estate owned assets with an aggregate trust balance of $95.3 million, down from 294 loans totaling $130.5 million at issuance. There are currently 53 loans totaling $31.5 million (33.1%) with the special servicer. Nine of the assets in the pool are REO (9.25%), 22 are in foreclosure (13.2%), two are in bankruptcy (0.3%), seven are 90-plus-days delinquent (1.9%), three is 60-plus-days delinquent (1.5%), and nine are 30-plus-days delinquent (4.7%). To date, the trust has experienced losses on 30 loans. The total losses to the trust are $6.6 million. Rating Lowered CBA Commercial Assets Commercial mortgage pass-through certificates series 2006-2 Rating ------ Class To From Credit enhancement ----- -- ---- ------------------ M-4 D (sf) CCC- (sf) N/A N/A - Not applicable. CRYSTAL RIVER: Moody's Junks $130 Million Floating Rate Notes ------------------------------------------------------------- Moody's Investors Service has downgraded the rating of two classes of notes issued by Crystal River CDO 2005-1 Limited. The notes affected by the rating action are as follows: * U.S.$109,750,000 Class A Floating Rate Notes Due 2046 (current balance of $12,120,166), Downgraded to Ca (sf); previously on October 19, 2009 Downgraded to Caa1 (sf); * U.S.$20,500,000 Class C Floating Rate Notes Due 2046, Downgraded to C (sf); previously on October 19, 2009 Downgraded to Ca (sf). Crystal River CDO 2005-1 Limited is a collateralized debt obligation issuance backed by a portfolio of primarily Residential Mortgage-Backed Securities originated between 2003 and 2006. According to Moody's, the rating downgrade actions are the result of an increase in the proportion of defaulted assets within the underlying portfolio. This deterioration has significantly decreased the par coverage of the notes. The Class A/B/C/D Par Value Test, as reported by the trustee, has decreased from 44% in October 2009 to 9.86% in August 2010. Additionally, Moody's noted that the transaction is negatively impacted by a large pay-fixed, receive-floating interest rate swap where payments to the hedge counterparty absorb a large portion of the excess spread in the deal. Moody's notes that in arriving at its ratings of ABS CDOs, there exist a number of sources of uncertainty, operating both on a macro level and on a transaction-specific level. Among the general macro uncertainties are those surrounding future housing prices, pace of residential mortgage foreclosures, loan modification and refinancing, unemployment rate and interest rates. However, in light of the performance indicators noted above, Moody's believes that it is unlikely that the ratings announced today are sensitive to further change. In addition to the quantitative factors that are explicitly modeled, qualitative factors are part of rating committee considerations. These qualitative factors include the structural protections in each transaction, the recent deal performance in the current market environment, the legal environment, specific documentation features, the collateral manager's track record, and the potential for selection bias in the portfolio. All information available to rating committees, including macroeconomic forecasts, input from other Moody's analytical groups, market factors, and judgments regarding the nature and severity of credit stress on the transactions, may influence the final rating decision. In deriving its ratings, Moody's uses the collateral instrument's current rating-based expected loss, Moody's recovery rate table, and the original rating of the instrument along with its average life to infer an unadjusted default probability. The approach Moody's takes to defining the default distribution for the SF CDO collateral depends on the structure of the CDO itself. Moody's applied the Monte Carlo simulation framework within CDOROMv2.6 to model the loss distribution for SF CDOs. Within this framework, defaults are generated so that they occur with the frequency indicated by the adjusted default probability pool for each credit in the reference. Specifically, correlated defaults are simulated using a normal copula model that applies the asset correlation framework. Recovery rates for defaulted credits are generated by applying within the simulation the distributional assumptions, including the correlation between recovery values. Together, the simulated defaults and recoveries across each of the Monte Carlo scenarios define the loss distribution for the reference pool. Once the loss distribution for the collateral has been calculated, each collateral loss scenario derived through the CDOROM loss distribution is associated with the interest and principal received by the rated liability classes via the CDOEdge cash-flow model. The cash flow model takes into account of: collateral cash flows, the transaction covenants, the priority of payments for interest and principal proceeds received from portfolio assets, reinvestment assumptions, the timing of defaults, interest-rate scenarios and foreign exchange risk. The Expected Loss for each tranche is the weighted average of losses to each tranche across all the scenarios, where the weight is the likelihood of the scenario occurring. Moody's defines the loss as the shortfall in the present value of cash flows to the tranche relative to the present value of the promised cash flows. The present values are calculated using the promised tranche coupon rate as the discount rate. For floating rate tranches, the discount rate is based on the promised spread over Libor and the assumed Libor scenario. The principal methodology used in rating Crystal River CDO 2005-1 Limited was "Moody's Approach to Rating SF CDOs" rating methodology published in August 2009. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found on Moody's website. Moody's Investors Service did not receive or take into account a third party due diligence report on the underlying assets or financial instruments related to the monitoring of this transaction in the past 6 months. DEUTSCHE BANK: Moody's Takes Rating Actions on Various Tranches --------------------------------------------------------------- Moody's Investors Service has upgraded the ratings of 7 tranches, downgraded the ratings of 99 tranches and confirmed the ratings on 15 tranches from 18 RMBS transactions, backed by Alt-A loans, issued by Deutsche Bank. Ratings Rationale The collateral backing these transactions consists primarily of first-lien, fixed and adjustable-rate, Alt-A residential mortgage loans. The actions are a result of the rapidly deteriorating performance of Alt-A pools in conjunction with macroeconomic conditions that remain under duress. The actions reflect Moody's updated loss expectations on Alt-A pools issued from 2005 to 2007. The principal methodology used in rating these securities was "Alt-A RMBS Loss Projection Update: February 2010" rating methodology published in February 2010. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found on Moody's website. To assess the rating implications of the updated loss levels on Alt-A RMBS, each individual pool was run through a variety of scenarios in the Structured Finance Workstation(R), the cash flow model developed by Moody's Wall Street Analytics. This individual pool level analysis incorporates performance variances across the different pools and the structural features of the transaction including priorities of payment distribution among the different tranches, average life of the tranches, current balances of the tranches and future cash flows under expected and stressed scenarios. The scenarios include ninety-six different combinations comprising of six loss levels, four loss timing curves and four prepayment curves. The volatility in losses experienced by a tranche due to small increments in losses on the underlying mortgage pool is taken into consideration when assigning ratings. The above mentioned approach "Alt-A RMBS Loss Projection Update: February 2010" is adjusted slightly when estimating losses on pools left with a small number of loans. To project losses on pools with fewer than 100 loans, Moody's first estimates a "baseline" average rate of new delinquencies for the pool that is dependent on the vintage of loan origination (10%, 19% and 21% for the 2005, 2006 and 2007 vintage respectively). This baseline rate is higher than the average rate of new delinquencies for the vintage to account for the volatile nature of small pools. Even if a few loans in a small pool become delinquent, there could be a large increase in the overall pool delinquency level due to the concentration risk. Once the baseline rate is set, further adjustments are made based on 1) the number of loans remaining in the pool and 2) the level of current delinquencies in the pool. The fewer the number of loans remaining in the pool, the higher the volatility and hence the stress applied. Once the loan count in a pool falls below 75, the rate of delinquency is increased by 1% for every loan less than 75. For example, for a pool with 74 loans from the 2005 vintage, the adjusted rate of new delinquency would be 10.10%. If current delinquency levels in a small pool is low, future delinquencies are expected to reflect this trend. To account for that, the rate calculated above is multiplied by a factor ranging from 0.2 to 2.0 for current delinquencies ranging from less than 2.5% to greater than 50% respectively. Delinquencies for subsequent years and ultimate expected losses are projected using the approach described in the methodology publication. Certain securities, as noted below, are insured by financial guarantors. For securities insured by a financial guarantor, the rating on the securities is the higher of (i) the guarantor's financial strength rating and (ii) the current underlying rating (i.e., absent consideration of the guaranty) on the security. The principal methodology used in determining the underlying rating is the same methodology for rating securities that do not have a financial guaranty and is as described earlier. RMBS securities wrapped by Ambac Assurance Corporation are rated at their underlying rating without consideration of Ambac's guaranty. The primary source of assumption uncertainty is the current macroeconomic environment, in which unemployment remains at high levels, and weakness persists in the housing market. Moody's notes an increasing potential for a double-dip recession, which could cause a further 20% decline in home prices (versus its baseline assumption of roughly 5% further decline). Overall, Moody's assumes a further 5% decline in home prices with stabilization in early 2011, accompanied by continued stress in national employment levels through that timeframe. Moody's Investors Service received and took into account one or more third party due diligence reports on the underlying assets or financial instruments in this transaction and the due diligence reports had a neutral impact on the rating. Complete rating actions are: Issuer: DBALT 2007-RAMP1 -- Cl. A-2, Downgraded to Caa1 (sf); previously on Jan. 14, 2010 Ba2 (sf) Placed Under Review for Possible Downgrade -- Cl. A-3, Downgraded to C (sf); previously on Jan. 14, 2010 Ca (sf) Placed Under Review for Possible Downgrade -- Cl. A-4, Downgraded to C (sf); previously on Jan. 14, 2010 Ca (sf) Placed Under Review for Possible Downgrade Issuer: Deutsche Alt-A Securities Mortgage Loan Trust, Series 2006-AR4 -- Cl. A-1, Downgraded to Caa3 (sf); previously on Jan. 14, 2010 Caa2 (sf) Placed Under Review for Possible Downgrade -- Cl. A-2, Downgraded to Caa3 (sf); previously on Jan. 14, 2010 Caa2 (sf) Placed Under Review for Possible Downgrade -- Cl. A-3, Downgraded to C (sf); previously on Jan. 14, 2010 Caa3 (sf) Placed Under Review for Possible Downgrade Issuer: Deutsche Alt-A Securities Mortgage Loan Trust, Series 2006-AR5 -- Cl. I-A-1, Downgraded to Caa3 (sf); previously on Jan. 14, 2010 Caa2 (sf) Placed Under Review for Possible Downgrade -- Cl. I-A-2, Downgraded to Caa3 (sf); previously on Jan. 14, 2010 Caa1 (sf) Placed Under Review for Possible Downgrade -- Cl. I-A-3, Downgraded to C (sf); previously on Jan. 14, 2010 Caa3 (sf) Placed Under Review for Possible Downgrade -- Cl. I-A-4, Downgraded to C (sf); previously on Jan. 14, 2010 Ca (sf) Placed Under Review for Possible Downgrade -- Cl. II-1A, Downgraded to Caa3 (sf); previously on Jan. 14, 2010 Caa1 (sf) Placed Under Review for Possible Downgrade -- Cl. II-2A, Confirmed at Caa1 (sf); previously on Jan. 14, 2010 Caa1 (sf) Placed Under Review for Possible Downgrade -- Cl. II-3A, Downgraded to Caa2 (sf); previously on Jan. 14, 2010 Caa1 (sf) Placed Under Review for Possible Downgrade -- Cl. II-X1, Downgraded to Caa3 (sf); previously on Jan. 14, 2010 Caa1 (sf) Placed Under Review for Possible Downgrade -- Cl. II-X2, Confirmed at Caa1 (sf); previously on Jan. 14, 2010 Caa1 (sf) Placed Under Review for Possible Downgrade -- Cl. II-PO, Downgraded to Caa2 (sf); previously on Jan. 14, 2010 Caa1 (sf) Placed Under Review for Possible Downgrade Issuer: Deutsche Alt-A Securities Mortgage Loan Trust, Series 2007-1 -- Cl. A-5, Downgraded to C (sf); previously on Jan. 14, 2010 Ca (sf) Placed Under Review for Possible Downgrade -- Cl. I-A-1, Upgraded to A2 (sf); previously on Jan. 14, 2010 Ba3 (sf) Placed Under Review for Possible Downgrade -- Cl. I-A-2, Upgraded to B2 (sf); previously on Jan. 14, 2010 Caa2 (sf) Placed Under Review for Possible Downgrade -- Cl. I-A-3A, Confirmed at Caa3 (sf); previously on Jan. 14, 2010 Caa3 (sf) Placed Under Review for Possible Downgrade -- Cl. I-A-3B, Confirmed at Caa3 (sf); previously on Jan. 14, 2010 Caa3 (sf) Placed Under Review for Possible Downgrade -- Cl. I-A-3C, Confirmed at Caa3 (sf); previously on Jan. 14, 2010 Caa3 (sf) Placed Under Review for Possible Downgrade -- Cl. I-A-4A, Current Rating at B3 (sf); previously on Feb. 18, 2009 Downgraded to B3 (sf) -- Underlying Rating: Downgraded to Ca (sf); previously on Jan. 21, 2010 Caa3 (sf) Placed Under Review for Possible Downgrade -- Financial Guarantor: MBIA Insurance Corporation (Downgraded to B3, Outlook Negative on June 25, 2009) -- Cl. I-A-4B, Downgraded to Ca (sf); previously on Jan. 14, 2010 Caa3 (sf) Placed Under Review for Possible Downgrade -- Cl. II-A-1, Downgraded to Caa3 (sf); previously on Jan. 14, 2010 Caa1 (sf) Placed Under Review for Possible Downgrade Issuer: Deutsche Alt-A Securities Mortgage Loan Trust, Series 2007-2 -- Cl. I-A-1, Upgraded to Ba1 (sf); previously on Jan. 14, 2010 Ba3 (sf) Placed Under Review for Possible Downgrade -- Cl. I-X-1, Upgraded to Ba1 (sf); previously on Jan. 14, 2010 Ba3 (sf) Placed Under Review for Possible Downgrade -- Cl. I-X-2, Upgraded to Ba1 (sf); previously on Jan. 14, 2010 Ba3 (sf) Placed Under Review for Possible Downgrade -- Cl. I-A-2, Confirmed at Ca (sf); previously on Jan. 14, 2010 Ca (sf) Placed Under Review for Possible Downgrade -- Cl. II-A-2, Downgraded to C (sf); previously on Jan. 14, 2010 Ca (sf) Placed Under Review for Possible Downgrade -- Cl. II-A-1, Confirmed at Caa2 (sf); previously on Jan. 14, 2010 Caa2 (sf) Placed Under Review for Possible Downgrade -- Cl. II-X-1, Confirmed at Caa2 (sf); previously on Jan. 14, 2010 Caa2 (sf) Placed Under Review for Possible Downgrade -- Cl. II-X-2, Confirmed at Caa2 (sf); previously on Jan. 14, 2010 Caa2 (sf) Placed Under Review for Possible Downgrade Issuer: Deutsche Alt-A Securities Mortgage Loan Trust, Series 2007-AR2 -- Cl. A-1, Downgraded to Caa3 (sf); previously on Jan. 14, 2010 Caa1 (sf) Placed Under Review for Possible Downgrade -- Cl. A-2, Downgraded to C (sf); previously on Jan. 14, 2010 Caa3 (sf) Placed Under Review for Possible Downgrade -- Cl. A-3, Downgraded to C (sf); previously on Jan. 14, 2010 Ca (sf) Placed Under Review for Possible Downgrade -- Cl. A-4, Downgraded to Caa3 (sf); previously on Jan. 14, 2010 Caa1 (sf) Placed Under Review for Possible Downgrade -- Cl. A-5, Downgraded to C (sf); previously on Jan. 14, 2010 Caa1 (sf) Placed Under Review for Possible Downgrade -- Cl. A-6, Downgraded to C (sf); previously on Jan. 14, 2010 Caa3 (sf) Placed Under Review for Possible Downgrade -- Cl. A-7, Downgraded to C (sf); previously on Jan. 14, 2010 Caa3 (sf) Placed Under Review for Possible Downgrade Issuer: Deutsche Alt-A Securities Mortgage Loan Trust, Series 2007-BAR1 -- Cl. A-2, Confirmed at Aa1 (sf); previously on Jan. 14, 2010 Aa1 (sf) Placed Under Review for Possible Downgrade -- Cl. A-3, Downgraded to Caa3 (sf); previously on Jan. 14, 2010 Caa2 (sf) Placed Under Review for Possible Downgrade -- Cl. A-4, Downgraded to C (sf); previously on Jan. 14, 2010 Ca (sf) Placed Under Review for Possible Downgrade -- Cl. A-5, Downgraded to C (sf); previously on Jan. 14, 2010 Ca (sf) Placed Under Review for Possible Downgrade Issuer: Deutsche Alt-A Securities, Inc. Mortgage Loan Trust Series 2006-AF1 -- Cl. A-3, Confirmed at Caa1 (sf); previously on Jan. 14, 2010 Caa1 (sf) Placed Under Review for Possible Downgrade -- Cl. A-4, Downgraded to Ca (sf); previously on Jan. 14, 2010 Caa1 (sf) Placed Under Review for Possible Downgrade -- Cl. A-5, Downgraded to C (sf); previously on Jan. 14, 2010 Ca (sf) Placed Under Review for Possible Downgrade Issuer: Deutsche Alt-A Securities, Inc. Mortgage Loan Trust Series 2006-AR1 -- Cl. I-A-2, Confirmed at B3 (sf); previously on Jan. 14, 2010 B3 (sf) Placed Under Review for Possible Downgrade -- Cl. I-A-3, Downgraded to Caa3 (sf); previously on Jan. 14, 2010 Caa1 (sf) Placed Under Review for Possible Downgrade -- Cl. I-A-4, Downgraded to C (sf); previously on Jan. 14, 2010 Ca (sf) Placed Under Review for Possible Downgrade Issuer: Deutsche Alt-A Securities, Inc. Mortgage Loan Trust Series 2006-AR2 -- Cl. A-1-1, Downgraded to Caa3 (sf); previously on Jan. 14, 2010 Caa2 (sf) Placed Under Review for Possible Downgrade -- Cl. A-1-2, Downgraded to Caa3 (sf); previously on Jan. 14, 2010 Caa2 (sf) Placed Under Review for Possible Downgrade -- Cl. A-2, Downgraded to C (sf); previously on Jan. 14, 2010 Ca (sf) Placed Under Review for Possible Downgrade Issuer: Deutsche Alt-A Securities, Inc. Mortgage Loan Trust Series 2006-AR3 -- Cl. A-1, Downgraded to Ca (sf); previously on Jan. 14, 2010 Caa3 (sf) Placed Under Review for Possible Downgrade -- Cl. A-2, Downgraded to Ca (sf); previously on Jan. 14, 2010 Caa3 (sf) Placed Under Review for Possible Downgrade -- Cl. A-4, Upgraded to Caa1 (sf); previously on Jan. 14, 2010 Caa3 (sf) Placed Under Review for Possible Downgrade -- Cl. A-5, Confirmed at Caa3 (sf); previously on Jan. 14, 2010 Caa3 (sf) Placed Under Review for Possible Downgrade -- Cl. A-6, Downgraded to C (sf); previously on Jan. 14, 2010 Caa3 (sf) Placed Under Review for Possible Downgrade -- Cl. A-7, Downgraded to C (sf); previously on Jan. 14, 2010 Ca (sf) Placed Under Review for Possible Downgrade Issuer: Deutsche Alt-A Securities, Inc. Mortgage Loan Trust Series 2006-AR6 -- Cl. A-4, Downgraded to Caa3 (sf); previously on Jan. 14, 2010 Caa2 (sf) Placed Under Review for Possible Downgrade -- Cl. A-5, Downgraded to C (sf); previously on Jan. 14, 2010 Caa2 (sf) Placed Under Review for Possible Downgrade -- Cl. A-6, Downgraded to Caa3 (sf); previously on Jan. 14, 2010 Caa2 (sf) Placed Under Review for Possible Downgrade -- Cl. A-7, Downgraded to C (sf); previously on Jan. 14, 2010 Caa2 (sf) Placed Under Review for Possible Downgrade -- Cl. A-8, Downgraded to C (sf); previously on Jan. 14, 2010 Ca (sf) Placed Under Review for Possible Downgrade Issuer: Deutsche Alt-A Securities, Inc. Mortgage Loan Trust Series 2007-AR1 -- Cl. A-1, Downgraded to Ca (sf); previously on Jan. 14, 2010 Caa2 (sf) Placed Under Review for Possible Downgrade -- Cl. A-2, Downgraded to Ca (sf); previously on Jan. 14, 2010 Caa2 (sf) Placed Under Review for Possible Downgrade -- Cl. A-4, Downgraded to Caa3 (sf); previously on Jan. 14, 2010 Caa2 (sf) Placed Under Review for Possible Downgrade -- Cl. A-5, Downgraded to C (sf); previously on Jan. 14, 2010 Caa2 (sf) Placed Under Review for Possible Downgrade -- Cl. A-6, Downgraded to C (sf); previously on Jan. 14, 2010 Ca (sf) Placed Under Review for Possible Downgrade Issuer: Deutsche Alt-A Securities, Inc. Mortgage Loan Trust Series 2007-AR3 -- Cl. II-A-1, Upgraded to Ba1 (sf); previously on Jan. 14, 2010 Ba3 (sf) Placed Under Review for Possible Downgrade -- Cl. II-A-2A, Downgraded to Caa3 (sf); previously on Jan. 14, 2010 Caa1 (sf) Placed Under Review for Possible Downgrade -- Cl. II-A-2B, Downgraded to Caa3 (sf); previously on Jan. 14, 2010 Caa1 (sf) Placed Under Review for Possible Downgrade -- Cl. II-A-3, Downgraded to C (sf); previously on Jan. 14, 2010 Ca (sf) Placed Under Review for Possible Downgrade -- Cl. II-A-4, Downgraded to C (sf); previously on Jan. 14, 2010 Caa2 (sf) Placed Under Review for Possible Downgrade -- Cl. II-A-5, Downgraded to Caa3 (sf); previously on Jan. 14, 2010 Caa1 (sf) Placed Under Review for Possible Downgrade -- Cl. II-A-6, Downgraded to C (sf); previously on Jan. 14, 2010 Caa3 (sf) Placed Under Review for Possible Downgrade -- Cl. II-A-7, Downgraded to C (sf); previously on Jan. 14, 2010 Ca (sf) Placed Under Review for Possible Downgrade -- Cl. I-A-1, Current Rating at B3 (sf); previously on Feb. 18, 2009 Downgraded to B3 (sf) -- Underlying Rating: Downgraded to Ca (sf); previously on Jan. 21, 2010 Caa3 (sf) Placed Under Review for Possible Downgrade -- Financial Guarantor: MBIA Insurance Corporation (Downgraded to B3, Outlook Negative on June 25, 2009) -- Cl. I-A-2, Current Rating at B3 (sf); previously on Feb. 18, 2009 Downgraded to B3 (sf) -- Underlying Rating: Downgraded to Ca (sf); previously on Jan. 21, 2010 Caa3 (sf) Placed Under Review for Possible Downgrade -- Financial Guarantor: MBIA Insurance Corporation (Downgraded to B3, Outlook Negative on June 25, 2009) -- Cl. I-A-3, Current Rating at B3 (sf); previously on Feb. 18, 2009 Downgraded to B3 (sf) -- Underlying Rating: Confirmed at Caa3 (sf); previously on Jan. 21, 2010 Caa3 (sf) Placed Under Review for Possible Downgrade -- Financial Guarantor: MBIA Insurance Corporation (Downgraded to B3, Outlook Negative on June 25, 2009) -- Cl. I-A-4, Current Rating at B3 (sf); previously on Feb. 18, 2009 Downgraded to B3 (sf) -- Underlying Rating: Downgraded to C (sf); previously on Jan. 21, 2010 Caa3 (sf) Placed Under Review for Possible Downgrade -- Financial Guarantor: MBIA Insurance Corporation (Downgraded to B3, Outlook Negative on June 25, 2009) Issuer: Deutsche Alt-B Securities Mortgage Loan Trust, Series 2006-AB1 -- Cl. A-1-A, Downgraded to Caa3 (sf); previously on Jan. 14, 2010 Caa1 (sf) Placed Under Review for Possible Downgrade -- Cl. A-1-B, Downgraded to Caa3 (sf); previously on Jan. 14, 2010 Caa1 (sf) Placed Under Review for Possible Downgrade -- Cl. A-1-C, Downgraded to Caa3 (sf); previously on Jan. 14, 2010 Caa2 (sf) Placed Under Review for Possible Downgrade -- Cl. A-2-B, Downgraded to Caa3 (sf); previously on Jan. 14, 2010 Caa1 (sf) Placed Under Review for Possible Downgrade -- Cl. A-2-C, Downgraded to Caa3 (sf); previously on Jan. 14, 2010 Caa1 (sf) Placed Under Review for Possible Downgrade -- Cl. A-2-D, Downgraded to Caa3 (sf); previously on Jan. 14, 2010 Caa1 (sf) Placed Under Review for Possible Downgrade -- Cl. A-4, Downgraded to Caa3 (sf); previously on Jan. 14, 2010 Caa2 (sf) Placed Under Review for Possible Downgrade -- Cl. A-X-1, Downgraded to Caa3 (sf); previously on Jan. 14, 2010 Aaa (sf) Placed Under Review for Possible Downgrade -- Cl. A-X-2, Downgraded to Caa3 (sf); previously on Jan. 14, 2010 Caa1 (sf) Placed Under Review for Possible Downgrade -- Cl. A-X, Downgraded to Caa3 (sf); previously on Jan. 14, 2010 Caa1 (sf) Placed Under Review for Possible Downgrade -- Cl. A-3, Current Rating at Aa3 (sf); previously on Nov. 12, 2009 Confirmed at Aa3 (sf) -- Underlying Rating: Downgraded to Caa3 (sf); previously on Jan. 21, 2010 Caa2 (sf) Placed Under Review for Possible Downgrade -- Financial Guarantor: Assured Guaranty Municipal Corp (Confirmed at Aa3, Outlook Negative on Nov. 12, 2009) Issuer: Deutsche Alt-B Securities Mortgage Loan Trust, Series 2006-AB4 -- Cl. A-1A, Downgraded to Ca (sf); previously on Jan. 14, 2010 Caa1 (sf) Placed Under Review for Possible Downgrade -- Cl. A-1B-1, Downgraded to Ca (sf); previously on Jan. 14, 2010 Ba3 (sf) Placed Under Review for Possible Downgrade -- Cl. A-1C, Downgraded to Ca (sf); previously on Jan. 14, 2010 Caa2 (sf) Placed Under Review for Possible Downgrade -- Cl. A-2, Downgraded to Ca (sf); previously on Jan. 14, 2010 Caa2 (sf) Placed Under Review for Possible Downgrade -- Cl. A-3, Downgraded to Ca (sf); previously on Jan. 14, 2010 Caa2 (sf) Placed Under Review for Possible Downgrade -- Cl. A-3A-1, Downgraded to Ca (sf); previously on Jan. 14, 2010 Caa2 (sf) Placed Under Review for Possible Downgrade -- Cl. A-4B, Downgraded to Ca (sf); previously on Jan. 14, 2010 Caa2 (sf) Placed Under Review for Possible Downgrade -- Cl. A-4C, Downgraded to Ca (sf); previously on Jan. 14, 2010 Caa2 (sf) Placed Under Review for Possible Downgrade -- Cl. A-6A-1, Downgraded to Caa3 (sf); previously on Jan. 14, 2010 Caa2 (sf) Placed Under Review for Possible Downgrade -- Cl. A-6A-2, Downgraded to Caa3 (sf); previously on Jan. 14, 2010 Caa2 (sf) Placed Under Review for Possible Downgrade -- Cl. A-1B-2, Current Rating at Aa3 (sf); previously on Nov. 12, 2009 Confirmed at Aa3 (sf) -- Underlying Rating: Downgraded to C (sf); previously on Jan. 21, 2010 B2 (sf) Placed Under Review for Possible Downgrade -- Financial Guarantor: Assured Guaranty Municipal Corp (Confirmed at Aa3, Outlook Negative on Nov. 12, 2009) -- Cl. A-3A-2, Current Rating at Aa3 (sf); previously on Nov. 12, 2009 Confirmed at Aa3 (sf) -- Underlying Rating: Downgraded to C (sf); previously on Jan. 21, 2010 Ca (sf) Placed Under Review for Possible Downgrade -- Financial Guarantor: Assured Guaranty Municipal Corp (Confirmed at Aa3, Outlook Negative on Nov. 12, 2009) -- Cl. A-4A, Current Rating at Aa3 (sf); previously on Nov. 12, 2009 Confirmed at Aa3 (sf) -- Underlying Rating: Downgraded to Ca (sf); previously on Jan. 21, 2010 Caa2 (sf) Placed Under Review for Possible Downgrade -- Financial Guarantor: Assured Guaranty Municipal Corp (Confirmed at Aa3, Outlook Negative on Nov. 12, 2009) -- Cl. A-5, Current Rating at Aa3 (sf); previously on Nov. 12, 2009 Confirmed at Aa3 (sf) -- Underlying Rating: Downgraded to Ca (sf); previously on Jan. 21, 2010 Caa2 (sf) Placed Under Review for Possible Downgrade -- Financial Guarantor: Assured Guaranty Municipal Corp (Confirmed at Aa3, Outlook Negative on Nov. 12, 2009) -- Cl. A-7, Current Rating at Aa3 (sf); previously on Nov. 12, 2009 Confirmed at Aa3 (sf) -- Underlying Rating: Downgraded to C (sf); previously on Jan. 21, 2010 Ca (sf) Placed Under Review for Possible Downgrade -- Financial Guarantor: Assured Guaranty Municipal Corp (Confirmed at Aa3, Outlook Negative on Nov. 12, 2009) Issuer: Deutsche Alt-B Securities Mortgage Loan Trust, Series 2007-AB1 -- Cl. A-1, Downgraded to Caa3 (sf); previously on Jan. 14, 2010 Caa2 (sf) Placed Under Review for Possible Downgrade -- Cl. A-2, Downgraded to C (sf); previously on Jan. 14, 2010 Ca (sf) Placed Under Review for Possible Downgrade -- Cl. AI-1, Downgraded to Caa3 (sf); previously on Jan. 14, 2010 Caa2 (sf) Placed Under Review for Possible Downgrade -- Cl. AI-2, Downgraded to C (sf); previously on Jan. 14, 2010 Ca (sf) Placed Under Review for Possible Downgrade -- Cl. X, Downgraded to Caa3 (sf); previously on Jan. 14, 2010 Caa2 (sf) Placed Under Review for Possible Downgrade -- Cl. PO, Confirmed at Ca (sf); previously on Jan. 14, 2010 Ca (sf) Placed Under Review for Possible Downgrade Issuer: Deutsche Alt-B Securities, Inc. Mortgage Loan Trust Series 2006-AB2 -- Cl. A-1, Confirmed at B3 (sf); previously on Jan. 14, 2010 B3 (sf) Placed Under Review for Possible Downgrade -- Cl. A-2, Downgraded to Caa3 (sf); previously on Jan. 14, 2010 Caa1 (sf) Placed Under Review for Possible Downgrade -- Cl. A-3, Downgraded to Caa3 (sf); previously on Jan. 14, 2010 Caa1 (sf) Placed Under Review for Possible Downgrade -- Cl. A-4, Downgraded to Ca (sf); previously on April 16, 2010 Caa2 (sf) Placed Under Review for Possible Downgrade -- Underlying Rating: Downgraded to Ca (sf); previously on Jan. 21, 2010 Caa2 (sf) Placed Under Review for Possible Downgrade -- Financial Guarantor: Ambac Assurance Corporation (Segregated Account - Unrated) -- Cl. A-5A, Downgraded to Ca (sf); previously on April 16, 2010 Caa2 (sf) Placed Under Review for Possible Downgrade -- Underlying Rating: Downgraded to Ca (sf); previously on Jan. 21, 2010 Caa2 (sf) Placed Under Review for Possible Downgrade -- Financial Guarantor: Ambac Assurance Corporation (Segregated Account - Unrated) -- Cl. A-5B, Downgraded to Caa3 (sf); previously on Jan. 14, 2010 Caa1 (sf) Placed Under Review for Possible Downgrade -- Cl. A-6, Downgraded to C (sf); previously on April 16, 2010 Downgraded to Ca (sf) and Placed Under Review for Possible Downgrade -- Underlying Rating: Downgraded to C (sf); previously on Jan. 21, 2010 Ca (sf) Placed Under Review for Possible Downgrade -- Financial Guarantor: Ambac Assurance Corporation (Segregated Account - Unrated) -- Cl. A-8, Downgraded to Caa3 (sf); previously on Jan. 14, 2010 Caa1 (sf) Placed Under Review for Possible Downgrade FIRST UNION: S&P Downgrades Ratings on Seven 2001-C3 Securities --------------------------------------------------------------- Standard & Poor's Ratings Services lowered its ratings on seven classes of commercial mortgage-backed securities from First Union National Bank Commercial Mortgage Trust's series 2001-C3. In addition, S&P affirmed its ratings on nine classes from the same transaction. The rating actions follow S&P's analysis of the transaction using its U.S. conduit and fusion CMBS criteria. The downgrades reflect concerns with the volume of loans that are coming due through next year (60.6%), as well as the percentage of the pool reporting debt service coverage under 1.10x (12.2%). While many have decent coverage, it may be challenging to refinance many of these loans, given capital market conditions. This could prompt special servicing transfers, as well as potential delinquencies. S&P's analysis included a review of the credit characteristics of all of the loans in the pool. Using servicer-provided financial information, S&P calculated an adjusted DSC of 1.32x and a loan- to-value ratio of 75.4%. S&P further stressed the loans' cash flows under S&P's 'AAA (sf)' scenario to yield a weighted average DSC of 1.11x and an LTV ratio of 97.1%. The implied defaults and loss severity under the 'AAA (sf)' scenario were 26.8% and 20.4%, respectively. The DSC and LTV calculations S&P noted above exclude the two ($4.8 million; 0.9%) specially serviced assets and 26 defeased loans ($200.5 million; 37.1%). S&P separately estimated losses for the two specially serviced assets, which S&P included in its 'AAA (sf)' scenario implied default and loss severity figures. The affirmations of the ratings reflect subordination levels that are consistent with the outstanding ratings. S&P affirmed its ratings on the class IO-I and IO-II interest-only certificates based on its current criteria. Credit Considerations As of the Aug. 16, 2010, remittance report, two assets ($4.8 million; 0.9%) in the pool were with the special servicer, LNR Partners Inc. One ($3.8 million, 0.7%) asset is real estate owned, and one ($1.0 million, 0.2%) asset is more than 90 days delinquent. Details are as follows: The Midway Office Park asset is a 55,674-sq.-ft. office property built in 1977 in Addison, Texas. The asset was transferred to the special servicer on Aug. 27, 2008, due to monetary default and is currently REO. The special servicer reported that the property is currently 64.9% occupied, and it is preparing to market the property for sale. An appraisal reduction amount of $2.6 million is in effect on this asset. Standard & Poor's expects a significant loss upon the resolution of this asset. The Villa Paradisa Apartments loan ($1.0 million, 0.2%) is secured by a 32-unit multifamily property built in 1982 in Las Vegas. The loan was transferred to the special servicer on June 22, 2010, due to imminent default and is currently more than 90 days delinquent. For year-end 2009, the reported occupancy and DSC were 94.0% and 1.03x, respectively. Standard & Poor's expects a moderate loss upon the resolution of this asset. Excluding defeased loans, 64 loans ($327.8 million, 96.4%) mature in 2010 and 2011. This includes four loans ($12.5 million; 2.3%) that were specially serviced and subsequently returned to the master servicer. The special servicer is entitled to 1% of all future principal and interest payments on the loan provided it continues to perform through maturity and remains with the master servicer, Wachovia Bank N.A. Transaction Summary As of the August 2010 remittance report, the transaction had an aggregate trust balance of $540.6 million (100 loans), compared with $818.8 million (125 loans) at issuance. The master servicer provided financial information for 99.3% of the trust balance. All of the servicer-provided financial information was partial- year 2009 or full-year 2009 data. S&P calculated a weighted average DSC of 1.35x for the nondefeased loans in the pool based on the reported figures. S&P's adjusted DSC and LTV were 1.32x and 75.4%, respectively, and exclude the two specially serviced assets and 26 defeased loans ($200.5 million; 37.1%). S&P separately estimated losses for the specially serviced assets. Twenty-three loans ($91.6 million, 16.9%) are on the master servicer's watchlist. Twelve loans ($14.1 million, 2.6%) have a reported DSC between 1.0x and 1.1x, and 11 loans ($51.7 million, 9.6%) have a reported DSC of less than 1.0x. The trust has experienced $19.9 million of principal losses on 13 loans to date. Summary of Top 10 Loans The top 10 loans secured by real estate have an aggregate outstanding balance of $166.6 million (30.8%). Using servicer- reported information, S&P calculated a weighted average DSC of 1.35x for the top 10 loans in the pool. S&P's adjusted DSC and LTV figures for the top 10 loans were 1.23x and 81.3%, respectively. Three of the top 10 loans are on the master servicer's watchlist, which S&P discuss below. The IAC Seattle Speiker loan ($13.3 million; 2.5%) is the fifth- largest loan in the pool and the largest loan on the watchlist. The loan is secured by a 194,689?sq.-ft. industrial property constructed in 2000 in SeaTac, Wash. The loan appears on the master servicer's watchlist due to lease expirations of several major tenants within the next six months. The master servicer has indicated that Transgroup Express Inc. (7.3% of net rentable area {NRA}) has recently vacated and that the borrower believes that Eagle Transport (15.0% of NRA, expiring Oct. 14, 2010, and DHL Global (17.9% of NRA, expiring Sept. 30, 2010) will also vacate at their lease expirations. There are four prospective tenants for the property. For year-end 2009, the reported occupancy and DSC were 96.0% and 1.42x, respectively. Standard & Poor's expects the DSC may decline to approximately 1.0x based upon the information provided by the master servicer, as well as the market information S&P considered in its analysis. The Alliance Business Center loan ($11.5 million; 2.1%) is the eighth-largest loan in the pool and the second-largest loan on the watchlist. The loan is secured by four mixed-use buildings with both office and retail in separate buildings totaling 122,964 sq. ft. built in 1996 in Fort Worth, Texas. The loan appears on the master servicer's watchlist due to low DSC. As of March 2010, the reported occupancy and DSC were 72.3% and 0.97x, respectively. The Madison Center loan ($9.3 million; 1.7%) is the ninth-largest loan in the pool and the third-largest loan on the watchlist. The loan is secured by a 220,088-sq.-ft. retail shopping center built in 1962 in Madison Heights, Mich. The loan appears on the master servicer's watchlist due to low DSC. As of March 2010, the reported occupancy and DSC were 81.0% and 0.81x, respectively. According to the master servicer, the property has three prospective tenants, one of which is for 25,000 sq. ft. Standard & Poor's stressed the loans in the pool according to its criteria and the resultant credit enhancement levels are consistent with S&P's lowered and affirmed ratings. Ratings Lowered First Union National Bank Commercial Mortgage Trust Commercial mortgage pass-through certificates series 2001-C3 Rating ------ Class To From Credit enhancement (%) ----- -- ---- ---------------------- H A (sf) A+ (sf) 10.33 J BBB- (sf) A- (sf) 6.92 K BB- (sf) BBB (sf) 4.27 L B- (sf) BB+ (sf) 3.13 M CCC+ (sf) BB (sf) 2.38 N CCC (sf) B+ (sf) 1.24 O CCC- (sf) B (sf) 0.48 Ratings Affirmed First Union National Bank Commercial Mortgage Trust Commercial mortgage pass-through certificates series 2001-C3 Class Rating Credit enhancement (%) ----- ------ ---------------------- A-3 AAA (sf) 32.10 B AAA (sf) 25.85 C AAA (sf) 23.58 D AAA (sf) 19.23 E AAA (sf) 17.14 F AA+ (sf) 14.87 G AA (sf) 12.60 IO-I AAA (sf) N/A IO-II AAA (sf) N/A N/A - Not applicable. FMC REAL: Deterioration of Credit Quality Cues Moody's Junk Rating ------------------------------------------------------------------ Moody's has affirmed one class and downgraded eight classes of Notes issued by FMC Real Estate CDO 2005-1, Ltd., due to the deterioration in the credit quality of the underlying portfolio as evidenced by an increase in the weighted average rating factor, and increase in Impaired Securities. The rating action, which concludes our review, is the result of Moody's on-going surveillance of commercial real estate collateralized debt obligation transactions. * US$94.913M Cl. A-1 Notes, Affirmed at Aaa (sf); previously on April 15, 2009 Confirmed at Aaa (sf) * US$43.941M Cl. A-2 Notes, Downgraded to Aa3 (sf); previously on May 12, 2010 Aaa (sf) Placed Under Review for Possible Downgrade * US$43.941M Cl. B Notes, Downgraded to A3 (sf); previously on May 12, 2010 Aa2 (sf) Placed Under Review for Possible Downgrade * US$49.434M Cl. C Notes, Downgraded to Ba2 (sf); previously on May 12, 2010 A3 (sf) Placed Under Review for Possible Downgrade * US$34.055M Cl. D Notes, Downgraded to Caa1 (sf); previously on May 12, 2010 Ba1 (sf) Placed Under Review for Possible Downgrade * US$13.182M Cl. E Notes, Downgraded to Caa2 (sf); previously on May 12, 2010 Ba2 (sf) Placed Under Review for Possible Downgrade * US$21.97M Cl. F Notes, Downgraded to Caa3 (sf); previously on May 12, 2010 Ba3 (sf) Placed Under Review for Possible Downgrade * US$35.153M Cl. G Notes, Downgraded to Ca (sf); previously on May 12, 2010 B2 (sf) Placed Under Review for Possible Downgrade * US$12.084M Cl. H Notes, Downgraded to C (sf); previously on May 12, 2010 Caa1 (sf) Placed Under Review for Possible Downgrade FMC Real Estate CDO 2005-1, Ltd., is a CRE CDO transaction backed by a portfolio A-Notes and whole loans, B-Notes, and mezzanine loans. As of the August 23, 2010 Trustee report, the aggregate Note balance of the transaction has decreased to $402.5 million from $439.4 million at issuance, with the paydown directed to the Class A-1 Notes, as a result of the end of the Reinvestment Period. There are nine assets with par balance of $116.8 million that are considered Impaired Securities as of the August 23, 2010 Trustee report. Four of these assets are either A-Notes or whole loans, four assets are B-Notes and one asset is a mezzanine loan. Moody's does not expect significant losses from these Impaired Securities to occur 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, weighted average recovery rate, and Moody's asset correlation. 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. Moody's has completed updated credit estimates for the non-Moody's rated reference obligations. For non-CUSIP collateral, Moody's is eliminating the additional default probability stress applied to corporate debt in CDOROM v2.6 as we expect the underlying non- CUSIP collateral to experience lower default rates and higher recovery compared to corporate debt due to the nature of the secured real estate collateral. The bottom-dollar WARF is a measure of the default probability within a collateral pool. Moody's modeled a bottom-dollar WARF of 9,164 compared to 7,132 at last review. The distribution of current ratings and credit estimates is as follows: Aaa-Aa3, Baa1-Baa3, Ba1-Ba3, B1-B3, and Caa1-C. WAL acts to adjust the probability of default of the reference obligations in the pool for time. Moody's modeled to a WAL of 3.2 years compared to 3.5 years at last review. WARR is the par-weighted average of the mean recovery values for the collateral assets in the pool. Moody's modeled a fixed WARR of 20.6% compared to 28.8% at last review. MAC is a single factor that describes the pair-wise asset correlation to the default distribution among the instruments within the collateral pool. For non-CUSIP collateral, Moody's is reducing the maximum over concentration stress applied to correlation factors by half due to the diversity of tenants, property types, and geographic locations inherent in the collateral pools. Moody's modeled a MAC of 12.9% compared to 23.9% at last review. The low MAC is due to higher default probability collateral concentrated within a small number of collateral names. The principal methodologies used in rating FMC Real Estate CDO 2005-1, Ltd. were "CMBS: Moody's Approach to Rating Static CDOs Backed by Commercial Real Estate Securities" published in June 2004, and "Moody's Approach to Rating SF CDOs" published in August 2009. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found on Moody's website. Moody's review incorporated CDOROM v2.6, one of Moody's CDO rating models, which was released on May 27, 2010. The cash flow model, CDOEdgeR v3.2, 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. Rated notes are particularly sensitive to changes in recovery rate assumptions. Holding all other key parameters static, changing the recovery rate assumption down from 20.6% to 10.6% or up to 30.6% would result in average rating movement on the rated tranches of 1 to 5 notches downward and 1 to 6 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 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 current stressed macroeconomic environment and continuing weakness in the commercial real estate and lending markets. Moody's currently views the commercial real estate market as stressed with further performance declines expected in a majority of property sectors. The availability of debt capital is improving with terms returning towards market norms. Job growth and housing price stability will be necessary precursors to commercial real estate recovery. Overall, Moody's central global scenario remains "hook- shaped" for 2010 and 2011; we expect overall a sluggish recovery in most of the world's largest economies, returning to trend growth rate with elevated fiscal deficits and persistent unemployment levels. Moody's Investors Service did not receive or take into account a third party due diligence report on the underlying assets or financial instruments related to the monitoring of this transaction in the past six months. GMAC COMMERCIAL: S&P Cuts Ratings on 9 Classes of Mortgage Certs. ----------------------------------------------------------------- Standard & Poor's Ratings Services lowered its ratings on nine classes of commercial mortgage pass-through certificates from GMAC Commercial Mortgage Securities Inc.'s series 2003-C2. S&P also placed these ratings and the ratings on four additional classes from the same transaction on CreditWatch with negative implications. The downgrades and CreditWatch placements follow S&P's preliminary analysis of the transaction after the August remittance report noted that interest shortfalls had affected seven classes from the trust. The interest shortfalls relate primarily to three of the six assets ($72.1 million, 8.73%) that are with the special servicer, CWCapital Asset Management LLC (CWCapital). The rating actions also reflect S&P's assessment of the transaction's susceptibility to increased future interest shortfalls if the master servicer, Berkadia Commercial Mortgage LLC (Berkadia), recovers outstanding advances related to one of the six specially serviced assets. As of the August 2010 remittance report, interest shortfalls totaling $339,079 have affected the class J through N certificates for one month, and the class O certificates for two months. The interest shortfalls are primarily due to appraisal subordinate entitlement reductions (ASERs) that are currently in effect for two of the six specially serviced assets, which have a balance of $55.4 million (6.7% of the trust balance). The reported ASERs for these two assets totaled $156,340. In addition, the master servicer made a nonrecoverable advance declaration in connection with one asset, which is real estate owned (REO). The master servicer is also recovering prior advances for this same asset, which contributed $157,132 of the interest shortfalls that were reported in the August remittance report: $74,985 of the shortfall for this asset was due to current interest that was not advanced and $82,147 was due to the recovery of advances made in prior periods. S&P expects the recovery of prior advances to increase, as Berkadia has stated that it will recover $789,637 in outstanding advances related to the REO asset over the next three months. As a result, S&P expects classes F, G, and H to be susceptible to future interest shortfalls. Standard & Poor's will resolve and/or update the CreditWatch placements after we have further dialogue with the servicers and perform a full analysis of the transaction. As of the Aug. 10, 2010, remittance report, the collateral pool consisted of 75 loans with an aggregate trust balance of $827.5 million. 22 loans ($293.5 million, 35.5%) have been defeased. Of the six assets with the special servicer, one ($16.7 million, 2.0%) is REO, one ($2.9 million, 0.4%) is in foreclosure, one ($11.4 million, 1.4%) is more than 90 days delinquent, and three ($91.3 million, 11.0%) are within their respective grace periods. Four of the specially serviced assets have ARAs in effect totaling $48.6 million. To date, the trust has experienced a loss of $4.2 million in connection with one loan. Ratings lowered and placed on creditwatch negative: GMAC Commercial Mortgage Securities Inc. Commercial mortgage pass-through certificates series 2003-C2 Rating Class To From Credit enhancement (%) F BBB+/Watch Neg (sf) A+ (sf) 12.17 G BBB/Watch Neg (sf) A (sf) 10.80 H BB+/Watch Neg (sf) BBB+ (sf) 8.85 J B+/Watch Neg (sf) BB+ (sf) 6.32 K B/Watch Neg (sf) BB (sf) 5.34 L B-/Watch Neg (sf) BB- (sf) 4.37 M CCC+/Watch Neg (sf) B+ (sf) 3.20 N CCC/Watch Neg (sf) B- (sf) 2.61 O CCC-/Watch Neg (sf) CCC (sf) 2.03 Ratings placed on creditwatch negative: GMAC Commercial Mortgage Securities Inc. Commercial mortgage pass-through certificates series 2003-C2 Rating Class To From Credit enhancement (%) B AAA/Watch Neg (sf) AAA (sf) 22.31 C AAA/Watch Neg (sf) AAA (sf) 20.36 D AA+/Watch Neg (sf) AA+ (sf) 16.65 E AA/Watch Neg (sf) AA (sf) 14.70 HOUSTON SPORTS: S&P Downgrades Rating on Bonds to 'B' ----------------------------------------------------- Standard & Poor's Ratings Services lowered its underlying rating on the Harris County-Houston Sports Authority, Texas' junior-lien series 1998-B, 1998-C, 2001-B, 2001-C, 2001-D, 2001-E, and 2001-H bonds, and the third-lien series 2004A-3 bonds to 'B' from 'BBB-'. "The downgrade is the result of higher debt service payments in the short term due to acceleration of the series 2001C, 2001D, and 2001E bonds, and the likelihood for a decline in reserve levels due a potential sizable collateral posting requirement related to interest rate swap agreements," said Standard & Poor's credit analyst James Breeding. Also triggering the downgrade is the recent, and potentially continuing, decline in excess hotel occupancy tax and vehicle tax revenues that would be available to support the junior-lien bonds. At the same time, however, Standard & Poor's has affirmed its 'BBB' underlying rating on the Authority's senior-lien bonds outstanding. The 'BBB' underlying rating applies to the series 1998-A, 2001-A, 2001-G, and 2001-I bonds. The 'BBB' rating on the senior-lien bonds reflects S&P's view of: -- the limited nature, volatility, and recent negative trends of the pledged tax revenue streams, though the revenue base remains large and diverse; -- good coverage of senior-lien debt service despite the recent declines in pledged tax revenues; and -- a lengthy maturity schedule extending through 2041, with a continuing rise in the annual debt service requirement. The 'B' rating on the junior- and third-lien bonds reflects S&P's assessment of: -- the reliance on other available special or supplemental revenues, specifically tied to events at the constructed venues, to support debt service payments for certain series of junior-lien bonds; -- the need for pledged hotel occupancy and vehicle rental tax revenues to increase to cover payments on the junior-lien bonds that do not have a pledge of other revenue streams; and -- the anticipated sharp reduction of available reserves to cover any shortages in revenues available for debt service. The stable outlook on the senior-lien bonds reflects Standard & Poor's expectation, that while pledged revenues have been declining, they are still at a level sufficient to cover annual debt service requirements. Monthly set-aside requirements that are above the minimum necessary to cover debt service help to ensure adequate coverage. In the long term, the rating could be pressured if hotel occupancy tax and/or vehicle rental taxes continue to experience declines. Given the escalating nature of the debt service schedule, an upgrade is unlikely even if revenues were to grow considerably. The negative outlook on the junior-lien bonds reflects S&P's expectation for coverage of junior-lien bond debt service to remain thin, with the reliance on revenues from non-tax sources, including the potential need for additional supplemental revenues to cover accelerated debt service payments. Falling coverage, coupled with a significantly reduced reserve fund, could create additional pressure on the rating. If the Authority exhaust the majority of the Additional Required Reserve and excess revenues fall below a 1.0x coverage level, specifically for the series 1998B and 2001B bonds, it may be forced to draw upon the surety policies. Also, if financial pressure related to the accelerated payments of the series 2001C, D, and E bonds increase and a draw on debt service reserve funds is required, then Standard & Poor's would likely lower the rating. The rating on the series 2001H bonds and the third-lien series 2004A-3 bonds would also be affected, even though there are no debt service payments due on these bonds until 2020 and 2031, respectively. LASALLE COMMERCIAL 2006-MF2: Moody's Junks $288 Mil. Class A Cert. ------------------------------------------------------------------ Moody's Investors Service downgraded the ratings of two classes and affirmed two classes of LaSalle Commercial Mortgage Securities Inc., Series 2006-MF2 as follows: * US$288.863M Cl. A Certificate, Downgraded to C (sf); previously on Dec. 10, 2009 Downgraded to Caa3 (sf) * US$8.745M Cl. B Certificate, Affirmed at C (sf); previously on Dec. 10, 2009 Downgraded to C (sf) * US$0.839M Cl. C Certificate, Affirmed at C (sf); previously on Dec. 10, 2009 Downgraded to C (sf) * Cl. X Certificate, Downgraded to C (sf); previously on Dec. 10, 2009 Downgraded to Caa3 (sf) The downgrades are due to higher expected losses for the pool resulting from realized and anticipated losses from specially serviced loans. Based on our current base expected loss, the credit enhancement levels for the affirmed classes are sufficient to maintain their existing ratings. This transaction is classified as a small balance CMBS transaction. Small balance transactions, which represent approximately 1% of the Moody's rated conduit/fusion universe, have generally experienced higher defaults and losses than traditional conduit and fusion transaction Moody's analysis reflects a forward-looking view of the likely range of collateral performance over the medium term. From time to time, Moody's may, if warranted, change these expectations. Performance that falls outside an acceptable range of the key parameters may indicate that the collateral's credit quality is stronger or weaker than Moody's had anticipated during the current review. Even so, deviation from the expected range will not necessarily result in a rating action. There may be mitigating or offsetting factors to an improvement or decline in collateral performance, such as increased subordination levels due to amortization and loan payoffs or a decline in subordination due to realized losses. Primary sources of assumption uncertainty are the current stressed macroeconomic environment and continuing weakness in the commercial real estate and lending markets. Moody's currently views the commercial real estate market as stressed with further performance declines expected in the industrial, office, and retail sectors. Hotel performance has begun to rebound, albeit off a very weak base. Multifamily has also begun to rebound reflecting an improved supply / demand relationship. The availability of debt capital is improving with terms returning towards market norms. Job growth and housing price stability will be necessary precursors to commercial real estate recovery. Overall, Moody's central global scenario remains "hook-shaped" for 2010 and 2011; we expect overall a sluggish recovery in most of the world's largest economies, returning to trend growth rate with elevated fiscal deficits and persistent unemployment levels. The principal methodology used in rating LaSalle Commercial Mortgage Securities Inc., Series 2006-MF2 is "CMBS: Moody's Approach to Small Loan Transactions" rating methodology published in December 2004. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found on Moody's website. Moody's review incorporated the use of the excel-based CMBS Conduit Model v 2.50 which is used for both conduit and fusion transactions. Conduit model results at the Aa2 level are driven by property type, Moody's actual and stressed DSCR, and Moody's property quality grade. Conduit model results at the B2 level are driven by a paydown analysis based on the individual loan level Moody's LTV ratio. Moody's Herfindahl score (Herf), a measure of loan level diversity, is a primary determinant of pool level diversity and has a greater impact on senior certificates. Other concentrations and correlations may be considered in our analysis. Based on the model pooled credit enhancement levels at Aa2 and B2, the remaining conduit classes are either interpolated between these two data points or determined based on a multiple or ratio of either of these two data points. For fusion deals, the credit enhancement for loans with investment-grade underlying ratings is melded with the conduit model credit enhancement into an overall model result. Fusion loan credit enhancement is based on the underlying rating of the loan which corresponds to a range of credit enhancement levels. Actual fusion credit enhancement levels are selected based on loan level diversity, pool leverage and other concentrations and correlations within the pool. Negative pooling, or adding credit enhancement at the underlying rating level, is incorporated for loans with similar underlying ratings in the same transaction. Moody's ratings are determined by a committee process that considers both quantitative and qualitative factors. Therefore, the rating outcome may differ from the model output. The rating action is a result of Moody's on-going surveillance of commercial mortgage backed securities transactions. Moody's monitors transactions on a monthly basis through two sets of quantitative tools -- MOST and CMM on Trepp -- and on a periodic basis through a comprehensive review. Moody's prior full review is summarized in a press release dated December 10, 2009. Moody's Investors Service did not receive or take into account a third party due diligence report on the underlying assets or financial instruments related to the monitoring of this transaction in the past 6 months. As of the August 20, 2010 distribution date, the transaction's aggregate certificate balance has decreased by 40% to $298.4 million from $495.5 million at securitization. The Certificates are collateralized by 339 mortgage loans ranging in size from less than 1% to 1.4% of the pool, with the top ten loans representing 11% of the pool. The pool has a Herfindahl (Herf) score of 227 compared to 251 at Moody's last review. Ninety loans, representing 27% of the pool, are on the master servicer's watchlist. The watchlist includes loans which meet certain portfolio review guidelines established as part of the CRE Finance Council monthly reporting package. As part of our ongoing monitoring of a transaction, Moody's reviews the watchlist to assess which loans have material issues that could impact performance. Fifty-six loans have been liquidated from the pool, resulting in an aggregate realized loss of $47.5 million. These losses have resulted in the elimination of Classes D through N and a 93% principal loss on Class C. Currently, there are 70 loans, representing 22% of the pool, in special servicing. The master servicer has recognized an aggregate $33.4 million appraisal reduction for the specially serviced loans. Moody's has estimated an aggregate $43.5 million loss for the specially serviced loans. Moody's rating action reflects a cumulative base expected loss of 16% of the current balance. The pool has also experienced significant interest shortfalls. Based on the most recent remittance statement, Classes B through N have experienced cumulative interest shortfalls totaling $3.2 million. Moody's anticipates that the pool will continue to experience interest shortfalls because of the high exposure to specially serviced loans. Interest shortfalls are caused by special servicing fees, including workout and liquidation fees, appraisal subordinate entitlement reductions and extraordinary trust expenses. LASALLE COMMERCIAL 2006-MF3: Moody's Junks $295MM Class A Cert. --------------------------------------------------------------- Moody's Investors Service downgraded the ratings of three classes of LaSalle Commercial Mortgage Securities Inc., Series 2006-MF3 as follows: * US$295.524M Cl. A Certificate, Downgraded to C (sf); previously on Dec. 10, 2009 Downgraded to B1 (sf) * US$6.711M Cl. B Certificate, Downgraded to C (sf); previously on Dec. 10, 2009 Downgraded to Ca (sf) * Cl. X Certificate, Downgraded to C (sf); previously on Dec. 10, 2009 Downgraded to B1 (sf) The downgrades are due to higher expected losses for the pool resulting from realized and anticipated losses from specially serviced loans. This transaction is classified as a small balance CMBS transaction. Small balance transactions, which represent approximately 1% of the Moody's rated conduit/fusion universe, have generally experienced higher defaults and losses than traditional conduit and fusion transaction. Moody's analysis reflects a forward-looking view of the likely range of collateral performance over the medium term. From time to time, Moody's may, if warranted, change these expectations. Performance that falls outside an acceptable range of the key parameters may indicate that the collateral's credit quality is stronger or weaker than Moody's had anticipated during the current review. Even so, deviation from the expected range will not necessarily result in a rating action. There may be mitigating or offsetting factors to an improvement or decline in collateral performance, such as increased subordination levels due to amortization and loan payoffs or a decline in subordination due to realized losses. Primary sources of assumption uncertainty are the current stressed macroeconomic environment and continuing weakness in the commercial real estate and lending markets. Moody's currently views the commercial real estate market as stressed with further performance declines expected in the industrial, office, and retail sectors. Hotel performance has begun to rebound, albeit off a very weak base. Multifamily has also begun to rebound reflecting an improved supply / demand relationship. The availability of debt capital is improving with terms returning towards market norms. Job growth and housing price stability will be necessary precursors to commercial real estate recovery. Overall, Moody's central global scenario remains "hook-shaped" for 2010 and 2011; Moody's expects overall a sluggish recovery in most of the world's largest economies, returning to trend growth rate with elevated fiscal deficits and persistent unemployment levels. The principal methodology used in rating LaSalle Commercial Mortgage Securities Inc., Series 2006-MF3 is "CMBS: Moody's Approach to Small Loan Transactions" rating methodology published in December 2004. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found on Moody's website. Moody's review incorporated the use of the excel-based CMBS Conduit Model v 2.50 which is used for both conduit and fusion transactions. Conduit model results at the Aa2 level are driven by property type, Moody's actual and stressed DSCR, and Moody's property quality grade. Conduit model results at the B2 level are driven by a paydown analysis based on the individual loan level Moody's LTV ratio. Moody's Herfindahl score (Herf), a measure of loan level diversity, is a primary determinant of pool level diversity and has a greater impact on senior certificates. Other concentrations and correlations may be considered in Moody's analysis. Based on the model pooled credit enhancement levels at Aa2 and B2, the remaining conduit classes are either interpolated between these two data points or determined based on a multiple or ratio of either of these two data points. For fusion deals, the credit enhancement for loans with investment-grade underlying ratings is melded with the conduit model credit enhancement into an overall model result. Fusion loan credit enhancement is based on the underlying rating of the loan which corresponds to a range of credit enhancement levels. Actual fusion credit enhancement levels are selected based on loan level diversity, pool leverage and other concentrations and correlations within the pool. Negative pooling, or adding credit enhancement at the underlying rating level, is incorporated for loans with similar underlying ratings in the same transaction. Moody's ratings are determined by a committee process that considers both quantitative and qualitative factors. Therefore, the rating outcome may differ from the model output. The rating action is a result of Moody's on-going surveillance of commercial mortgage backed securities transactions. Moody's monitors transactions on a monthly basis through two sets of quantitative tools -- MOST and CMM on Trepp -- and on a periodic basis through a comprehensive review. Moody's prior full review is summarized in a press release dated December 10, 2009. Moody's Investors Service did not receive or take into account a third party due diligence report on the underlying assets or financial instruments related to the monitoring of this transaction in the past 6 months. As of the August 20, 2010 distribution date, the transaction's aggregate certificate balance has decreased by 39% to $302.2 million from $493.4 million at securitization. The Certificates are collateralized by 303 mortgage loans ranging in size from less than 1% to 1.4% of the pool, with the top ten loans representing 11% of the pool. The pool has a Herfindahl (Herf) score of 206 compared to 235 at Moody's last review. One hundred nine loans, representing 36% of the pool, are on the master servicer's watchlist. The watchlist includes loans which meet certain portfolio review guidelines established as part of the CRE Finance Council (CREFC) monthly reporting package. As part of our ongoing monitoring of a transaction, Moody's reviews the watchlist to assess which loans have material issues that could impact performance. Sixty-nine loans have been liquidated from the pool, resulting in an aggregate realized loss of $53.7 million. These losses have resulted in the elimination of Classes C through N and a 16% principal loss on Class B. Currently, there are 59 loans, representing 19% of the pool, in special servicing. The master servicer has recognized an aggregate $11.1 million appraisal reduction for the specially serviced loans. Moody's has estimated an aggregate $49.9 million loss for the specially serviced loans. Moody's rating action reflects a cumulative base expected loss of 18% of the current balance. The pool has also experienced significant interest shortfalls. Based on the most recent remittance statement, the pool has experienced cumulative interest shortfalls totaling $908,031. Moody's anticipates that the pool will continue to experience interest shortfalls because of the high exposure to specially serviced loans. Interest shortfalls are caused by special servicing fees, including workout and liquidation fees, appraisal subordinate entitlement reductions and extraordinary trust expenses. LASALLE COMMERCIAL 2006-MF4: Moody's Holds Junks Ratings on Certs. ------------------------------------------------------------------ Moody's Investors Service downgraded the ratings of two classes and affirmed these three classes of LaSalle Commercial Mortgage Securities Inc., Series 2006-MF4: * US$312.926M Cl. A Certificate, Downgraded to C (sf); previously on Jan. 28, 2010 Downgraded to Caa2 (sf) * US$7.891M Cl. B Certificate, Affirmed at C (sf); previously on Jan. 28, 2010 Downgraded to C (sf) * US$11.836M Cl. C Certificate, Affirmed at C (sf); previously on Jan. 28, 2010 Downgraded to C (sf) * US$7.272M Cl. D Certificate, Affirmed at C (sf); previously on Jan. 28, 2010 Downgraded to C (sf) * Cl. X Certificate, Downgraded to C (sf); previously on Jan. 28, 2010 Downgraded to Caa2 (sf) The downgrades are due to higher expected losses for the pool resulting from realized and anticipated losses from specially serviced loans. Based on Moody's current base expected loss, the credit enhancement levels for the affirmed classes are sufficient to maintain their existing ratings. This transaction is classified as a small balance CMBS transaction. Small balance transactions, which represent approximately 1% of the Moody's rated conduit/fusion universe, have generally experienced higher defaults and losses than traditional conduit and fusion transaction Moody's analysis reflects a forward-looking view of the likely range of collateral performance over the medium term. From time to time, Moody's may, if warranted, change these expectations. Performance that falls outside an acceptable range of the key parameters may indicate that the collateral's credit quality is stronger or weaker than Moody's had anticipated during the current review. Even so, deviation from the expected range will not necessarily result in a rating action. There may be mitigating or offsetting factors to an improvement or decline in collateral performance, such as increased subordination levels due to amortization and loan payoffs or a decline in subordination due to realized losses. Primary sources of assumption uncertainty are the current stressed macroeconomic environment and continuing weakness in the commercial real estate and lending markets. Moody's currently views the commercial real estate market as stressed with further performance declines expected in the industrial, office, and retail sectors. Hotel performance has begun to rebound, albeit off a very weak base. Multifamily has also begun to rebound reflecting an improved supply / demand relationship. The availability of debt capital is improving with terms returning towards market norms. Job growth and housing price stability will be necessary precursors to commercial real estate recovery. Overall, Moody's central global scenario remains "hook-shaped" for 2010 and 2011; Moody's expects overall a sluggish recovery in most of the world's largest economies, returning to trend growth rate with elevated fiscal deficits and persistent unemployment levels. The principal methodology used in rating LaSalle Commercial Mortgage Securities Inc., Series 2006-MF4 is "CMBS: Moody's Approach to Small Loan Transactions" rating methodology published in December 2004. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found on Moody's website. Moody's review incorporated the use of the excel-based CMBS Conduit Model v 2.50 which is used for both conduit and fusion transactions. Conduit model results at the Aa2 level are driven by property type, Moody's actual and stressed DSCR, and Moody's property quality grade. Conduit model results at the B2 level are driven by a paydown analysis based on the individual loan level Moody's LTV ratio. Moody's Herfindahl score (Herf), a measure of loan level diversity, is a primary determinant of pool level diversity and has a greater impact on senior certificates. Other concentrations and correlations may be considered in our analysis. Based on the model pooled credit enhancement levels at Aa2 and B2, the remaining conduit classes are either interpolated between these two data points or determined based on a multiple or ratio of either of these two data points. For fusion deals, the credit enhancement for loans with investment-grade underlying ratings is melded with the conduit model credit enhancement into an overall model result. Fusion loan credit enhancement is based on the underlying rating of the loan which corresponds to a range of credit enhancement levels. Actual fusion credit enhancement levels are selected based on loan level diversity, pool leverage and other concentrations and correlations within the pool. Negative pooling, or adding credit enhancement at the underlying rating level, is incorporated for loans with similar underlying ratings in the same transaction. Moody's ratings are determined by a committee process that considers both quantitative and qualitative factors. Therefore, the rating outcome may differ from the model output. The rating action is a result of Moody's on-going surveillance of commercial mortgage backed securities transactions. Moody's monitors transactions on a monthly basis through two sets of quantitative tools -- MOST and CMM on Trepp -- and on a periodic basis through a comprehensive review. Moody's prior full review is summarized in a press release dated January 28, 2010. Moody's Investors Service did not receive or take into account a third party due diligence report on the underlying assets or financial instruments related to the monitoring of this transaction in the past 6 months. As of the August 20, 2010 distribution date, the transaction's aggregate certificate balance has decreased by 25% to $339.9 million from $450.9 million at securitization. The Certificates are collateralized by 287 mortgage loans ranging in size from less than 1% to 1.5% of the pool, with the top ten loans representing 11% of the pool. The pool has a Herfindahl (Herf) score of 203 compared to 217 at Moody's last review. Eighty loans, representing 27% of the pool, are on the master servicer's watchlist. The watchlist includes loans which meet certain portfolio review guidelines established as part of the CRE Finance Council monthly reporting package. As part of Moody's ongoing monitoring of a transaction, Moody's reviews the watchlist to assess which loans have material issues that could impact performance. Fifty-six loans have been liquidated from the pool, resulting in an aggregate realized loss of $47.5 million. These losses have resulted in the elimination of Classes E through N and a 19% principal loss on Class D. Currently, there are 53 loans, representing 21% of the pool, in special servicing. The master servicer has recognized an aggregate $29.5 million appraisal reduction for the specially serviced loans. Moody's has estimated an aggregate $56.8 million loss for the specially serviced loans. Moody's rating action reflects a cumulative base expected loss of 21% of the current balance. The pool has also experienced significant interest shortfalls. Based on the most recent remittance statement, the pool has experienced cumulative interest shortfalls totaling $2.7 million. Moody's anticipates that the pool will continue to experience interest shortfalls because of the high exposure to specially serviced loans. Interest shortfalls are caused by special servicing fees, including workout and liquidation fees, appraisal subordinate entitlement reductions and extraordinary trust expenses. LATITUDE CLO: Moody's Upgrades Ratings on Five Classes of Notes --------------------------------------------------------------- Moody's Investors Service announced that it has upgraded the ratings of these notes issued by Latitude CLO I Ltd.: -- US$45,000,000 Class A-2 Notes, Upgraded to A1 (sf); previously on June 18, 2009 Downgraded to A2 (sf) -- US$23,000,000 Class B-1 Notes, Upgraded to Ba1 (sf); previously on June 18, 2009 Downgraded to Ba2 (sf) -- US$2,000,000 Class B-2 Notes, Upgraded to Ba1 (sf); previously on June 18, 2009 Downgraded to B1 (sf) -- US$13,300,000 Class C Notes, Upgraded to Caa1 (sf); previously on June 18, 2009 Downgraded to Caa3 (sf) -- US$9,500,000 Class D Notes, Upgraded to Ca (sf); previously on June 18, 2009 Downgraded to C (sf) Ratings Rationale According to Moody's, the rating actions taken on the notes result primarily from improvement in the credit quality of the underlying portfolio and an increase in the overcollateralization ratios of the notes since the last rating action in June 2009. In addition to these factors, the rating actions on the Class B-1 and the Class B-2 notes also reflect a correction made to the modeling of the note payment waterfall. Improvement in the credit quality is observed through an improvement in the average credit rating (as measured by the weighted average rating factor) and a decrease in the proportion of securities from issuers rated Caa1 and below. In particular, as of the latest trustee report dated July 20, 2010, the weighted average rating factor is currently 2800 compared to 2866 in the June 2009 report, and securities rated Caa1/CCC+ or lower make up approximately 9.17% of the underlying portfolio versus 17.09% in June 2009. Moody's adjusted WARF has declined since the last rating action due to a decrease in the percentage of securities with ratings on "Review for Possible Downgrade" or with a "Negative Outlook." Additionally, defaulted securities total about $14.37 million of the underlying portfolio compared to $31.96 million in June 2009. The overcollateralization ratios of the rated notes have also increased since the last rating action. The Class A, Class B, Class C and Class D overcollateralization ratios are reported at 127.42%, 112.81%, 106.32% and 102.12%, respectively, versus June 2009 levels of 114.86%, 102.97%, 97.60% and 94.10%, respectively, and all related overcollateralization tests are currently in compliance. Moody's also notes that the Class C and Class D Notes are no longer deferring interest and that all previously deferred interest has been paid in full. In the previous rating action dated June 18, 2009, the note payment waterfall was modeled such that the Class B-2 notes were subordinated in right of payment of principal to the Class B-1 notes. In fact, the Class B-1 and Class B-2 notes should receive interest and principal on a pari passu basis. The note payment waterfall has been remodeled accordingly, and the rating actions reflect the correction. Due to the impact of revised and updated key assumptions referenced in "Moody's Approach to Rating Collateralized Loan Obligations" and "Annual Sector Review (2009): Global CLOs," key model inputs used by Moody's in its analysis, such as par, weighted average rating factor, diversity score, and weighted average recovery rate, may be different from the trustee's reported numbers. In its base case, Moody's analyzed the underlying collateral pool to have a performing par and principal proceeds of $235.52 million, defaulted par of $24.96 million, weighted average default probability of 25.91% (implying a WARF of 3828), a weighted average recovery rate upon default of 43.72%, and a diversity score of 63. These default and recovery properties of the collateral pool are incorporated in cash flow model analysis where they are subject to stresses as a function of the target rating of each CLO liability being reviewed. The default probability is derived from the credit quality of the collateral pool and Moody's expectation of the remaining life of the collateral pool. The average recovery rate to be realized on future defaults is based primarily on the seniority of the assets in the collateral pool. In each case, historical and market performance trends, and collateral manager latitude for trading the collateral are also factors. Latitude CLO I Ltd., issued in December 2005, is a collateralized loan obligation backed primarily by a portfolio of senior secured loans. Moody's Investors Service did not receive or take into account a third party due diligence report on the underlying assets or financial instruments related to the monitoring of this transaction in the past 6 months. Moody's modeled the transaction using the Binomial Expansion Technique, as described in Section 2.3.2.1 of the "Moody's Approach to Rating Collateralized Loan Obligations" rating methodology published in August 2009. In addition, to the base case analysis described above, Moody's also performed a number of sensitivity analyses to test the impact on all rated notes, including these: 1. Various default probabilities to capture potential defaults in the underlying portfolio. 2. A range of recovery rate assumptions for all assets to capture variability in recovery rates. Below is a summary of the impact of different default probabilities (expressed in terms of WARF levels) on all rated notes (shown in terms of the number of notches' difference versus the current model output, whereby a positive difference corresponds to lower expected losses), assuming that all other factors are held equal: Moody's Adjusted WARF -- 20% (3062) -- Class A1: 0 -- Class A2: +3 -- Class B1: +2 -- Class B2: +2 -- Class C: +2 -- Class D: +3 Moody's Adjusted WARF + 20% (4594) -- Class A1: 0 -- Class A2: -2 -- Class B1: -1 -- Class B2: -1 -- Class C: -4 -- Class D: -1 Below is a summary of the impact of different recovery rate levels on all rated notes (shown in terms of the number of notches' difference versus the current model output, whereby a positive difference corresponds to lower expected losses), assuming that all other factors are held equal: Moody's Adjusted WARR + 2% (45.72%) -- Class A1: 0 -- Class A2: +1 -- Class B1: 0 -- Class B2: 0 -- Class C: 0 -- Class D: +1 Moody's Adjusted WARR - 2% (41.72%) -- Class A1: 0 -- Class A2: 0 -- Class B1: 0 -- Class B2: 0 -- Class C: -1 -- Class D: 0 Moody's notes that this transaction is subject to a high level of macroeconomic uncertainty, as evidenced by 1) uncertainties of credit conditions in the general economy and 2) the large concentration of speculative-grade debt maturing between 2012 and 2014 which may create challenges for issuers to refinance. CDO notes' performance may also be impacted by 1) the managers' investment strategies and behavior, and 2) divergence in legal interpretation of CDO documentation by different transactional parties due to embedded ambiguities. Sources of additional performance uncertainties are described below: 1) Recovery of defaulted assets: Market value fluctuations in defaulted assets reported by the trustee and those assumed to be defaulted by Moody's may create volatility in the deals' overcollateralization levels. Further, the timing of recoveries and the manager's decision to work out versus selling defaulted assets create additional uncertainties. Moody's analyzed defaulted recoveries assuming the lower of the market price and the recovery rate in order to account for potential volatility in market prices. 2) Weighted average life: The notes' ratings are sensitive to the weighted average life assumption of the portfolio, which may be extended due to the manager's decision to reinvest into new issue loans or other loans with longer maturities and/or participate in amend-to-extend offerings. Moody's tested for a possible extension of the actual weighted average life in its analysis. 3) Other collateral quality metrics: The deal is allowed to reinvest and the manager has the ability to deteriorate the collateral quality metrics' existing cushions against the covenant levels. Moody's analyzed the impact of assuming lower of reported and covenanted values for weighted average rating factor, weighted average spread, weighted average coupon, and diversity score. LENOX HILL: Moody's Raises Ratings on Series 2001 Bonds From 'Ba1' ------------------------------------------------------------------ Moody's Investors Service has upgraded the rating assigned to Lenox Hill Hospital's Series 2001 bonds to Baa3 from Ba1. The rating has been removed from watchlist, and the outlook is positive at the higher rating level. The rating action impacts $127 million of Series 2001 bonds and reflects LHH becoming a member of North Shore-Long Island Jewish Health System (rated Baa1) effective May 19, 2010, and Moody's expectations for ongoing operational improvement at LHH. Legal Security: Gross revenue pledge of Lenox Hill Hospital. 1.25 rolling twelve-month debt service covenant test and 50 day cash on hand requirement. Moody's analysis has historically incorporated the consolidated financial performance of Lenox Hill Hospital and Manhattan Eye Ear and Throat Hospital who is not obligated on the debt but merged with LHH in 2007. Debt-Related Interest Rate Derivatives: none Strengths * Recent merger with North Shore-Long Island Jewish Health System (rated Baa1 with stable outlook) allows for many opportunities for operational improvement. LHH has struggled as a standalone hospital in the competitive New York landscape, unable to achieve certain economies of scale and to negotiate competitive reimbursement rates and terms with private payers. Moody's expects that the new management team will focus on operational efficiencies and expense containment, improved managed care contract rates and terms, and capturing of market share, including Manhattan and parts of Queens, with a goal of breakeven operations at LHH by FY 2012. * Although the legal security and obligated group for the Series 2001 bonds has not changed, the upgrade to Baa3 heavily incorporates an assumption that North Shore will provide the necessary financial and managerial resources to improve and grow LHH's clinical services, increase profitability, and make adequate capital investments. Moody's believes that this is a very strategic acquisition for North Shore, and as such, expect a strong ongoing commitment from the North Shore team to improve LHH's financial performance, expand clinical activities, and maintain a strong reputation. * Large tertiary care provider ($665 million of operating revenue and 28,344 inpatient admissions in FY 2009) located on the Upper East Side of Manhattan with specialties including cardiac care, obstetrics, and orthopedics. LHH has a high Medicare case mix index (1.8 in FY 2009) and a favorable payer mix (47% commercial payers, 8% Medicaid, and 41% Medicare, as calculated from discharges). LHH serves as a teaching affiliate of New York University Langone Medical Center. * Management reports strong physician support for the merger, with expected ongoing recruitment and expansion of medical staff. * Diverse patient mix and geographical draw at LHH that complements North Shore's patients' origins. LHH currently draws less than half of its patients from Manhattan (44%), and draws patients from other New York boroughs and out of state, including Queens and Brooklyn (each 15%). Moody's believe that LHH's strong market presence in the western region of Queens will nicely mesh with North Shore's stronger presence in the eastern parts of Queens. Challenges * Multi-year operating deficits and weak operating cash flow (2.6% operating deficit and 4.1% cash flow margin in FY 2009). Debt service coverage has been thin (1.7 times in FY 2009). Pressure on patient volumes and weak managed care contracts have contributed to weak operating performance. In FY 2009, LHH recorded 28,344 inpatient admissions, down from 31,494 in FY 2005. Based on unaudited financial data for the first six months of FY 2010, Moody's believe LHH's operating performance has improved modestly including growth of inpatient admissions volumes and outpatient surgeries year to date compared to the first 6 months of FY 2009. Moody's expects that there is significant room for operational improvement at LHH, with management targeting breakeven operations within 2-3 years. * Historically thin balance sheet liquidity and past significant exposure to hedge funds and other alternative investments with more limited liquidity, including within the pension plan. In FY 2009, LHH had $170.7 million of unrestricted cash and investments (including $20 million drawn on a working capital line of credit, which was has since been repaid), which provided 96 days cash on hand and covered $185 million of debt 0.92 times. North Shore is in the process of placing redemptions and liquidating a large proportion of alternative investments, with an expected significant shift into fixed income and equities which could be liquidated more quickly. * LHH has a relatively large unfunded pension obligation ($131 million in FY 2009), although the Hospital froze the defined benefit plan in 2007 and converted it to a defined contribution plan for all employees except nurses, which should help limit future growth of the obligation. * Need for continued capital investment at LHH. Capital spending has been low (0.7 times in FY 2009) and age of plant has steadily grown over the past four years (up to 14.2 years in FY 2009) indicating ongoing capital needs. Debt to revenue remains moderate at 27.8% in FY 2009. Recent Developments/Results Effective May 19, 2010, LHH became a member of North Shore-Long Island Jewish Health System. North Shore has become the sole corporate member of LHH. All LHH board members are now part of the North Shore board, with an LHH executive committee kept locally. The Chief Executive Officer, Chief Financial Officer, and Chief Operating Officer of North Shore will now serve those roles for LHH. Outlook The positive outlook reflects Moody's expectations for sustained improvement in LHH's operating performance and balance sheet liquidity. What could change the rating -- Up Improved cash flow and debt service coverage coupled with growth of unrestricted cash and investments and improved balance sheet liquidity What could change the rating -- Down Inability to turn around operating performance; balance sheet deterioration; significant increase in debt absent compensating growth of unrestricted cash and investments and revenue to pay debt service Key Indicators Assumptions & Adjustments: -- Based on financial statements for LHH and Subsidiaries -- First number reflects audit year ended December 31, 2008 -- Second number reflects audit year ended December 31, 2009 -- Investment returns smoothed at 6% unless otherwise noted * Admissions: 29,014 admissions; 28,344 admissions * Total operating revenue: $651.3 million; $665.2 million * Net revenue available for debt service: $62.0 million; $42.8 million * Total debt outstanding: $178.0 million; $184.96 million * Operating margin: (1.7%); (2.6%) * Operating cash flow margin: 5.5%; 4.1% * Cash-to-debt: 79.3%; 92.3% * Debt-to-cash flow: 3.38 times; 5.45 times * Days cash on hand: 82.5 days; 96.4 times Rated Debt * Series 2001: Baa3 Last Rating Action: The last rating action with respect to Lenox Hill Hospital was on June 10, 2010, when the Ba1 rating was placed on watchlist for upgrade. LUNAR FUNDING: S&P Withdraws Ratings on Various Classes of Notes ---------------------------------------------------------------- Standard & Poor's Ratings Services withdrew its ratings on the notes from Lunar Funding I Ltd.'s series 10, 11, and 12, three synthetic corporate investment-grade collateralized debt obligation transactions. Prior to the withdrawal, the ratings on series 10 and 11 were on CreditWatch with positive implications. The rating withdrawals follow the complete redemption and cancellation of the notes. Ratings Withdrawn Lunar Funding I Ltd. Series 10 Rating ------ Class To From ----- -- ---- 10 NR B- (sf)/Watch Pos Lunar Funding I Ltd. Series 11 Rating ------ Class To From ----- -- ---- 11 NR CCC- (sf)/Watch Pos Lunar Funding I Ltd. Series 12 Rating ------ Class To From ----- -- ---- 12 NR CCC- (sf) NR - Not rated. MERRILL LYNCH: Moody's Junks Seven Class Certificates ----------------------------------------------------- Moody's Investors Service downgraded the ratings of 13 classes, confirmed two and affirmed four classes of Merrill Lynch Mortgage Trust 2004-KEY2, Commercial Mortgage Pass-Through Certificates, Series 2004-KEY2 as follows: * US$78.305M Cl. A-2 Certificate, Affirmed at Aaa (sf); previously on Oct. 25, 2004 Definitive Rating Assigned Aaa (sf) * US$92.126M Cl. A-3 Certificate, Affirmed at Aaa (sf); previously on Oct. 25, 2004 Definitive Rating Assigned Aaa (sf) * Cl. XP Certificate, Affirmed at Aaa (sf); previously on Oct. 25, 2004 Definitive Rating Assigned Aaa (sf) * Cl. XC Certificate, Affirmed at Aaa (sf); previously on Oct. 25, 2004 Definitive Rating Assigned Aaa (sf) * US$181.953M Cl. A-1A Certificate, Confirmed at Aaa (sf); previously on July 29, 2010 Aaa (sf) Placed Under Review for Possible Downgrade * US$345.746M Cl. A-4 Certificate, Confirmed at Aaa (sf); previously on July 29, 2010 Aaa (sf) Placed Under Review for Possible Downgrade * US$26.474M Cl. B Certificate, Downgraded to Aa3 (sf); previously on July 29, 2010 Aa2 (sf) Placed Under Review for Possible Downgrade * US$8.361M Cl. C Certificate, Downgraded to A3 (sf); previously on July 29, 2010 Aa3 (sf) Placed Under Review for Possible Downgrade * US$22.295M Cl. D Certificate, Downgraded to Baa2 (sf); previously on July 29, 2010 A2 (sf) Placed Under Review for Possible Downgrade * US$12.54M Cl. E Certificate, Downgraded to B1 (sf); previously on July 29, 2010 A3 (sf) Placed Under Review for Possible Downgrade * US$15.328M Cl. F Certificate, Downgraded to B2 (sf); previously on July 29, 2010 Baa1 (sf) Placed Under Review for Possible Downgrade * US$11.147M Cl. G Certificate, Downgraded to B3 (sf); previously on July 29, 2010 Baa2 (sf) Placed Under Review for Possible Downgrade * US$15.328M Cl. H Certificate, Downgraded to Ca (sf); previously on July 29, 2010 Baa3 (sf) Placed Under Review for Possible Downgrade * US$6.967M Cl. J Certificate, Downgraded to Ca (sf); previously on July 29, 2010 Ba1 (sf) Placed Under Review for Possible Downgrade * US$5.573M Cl. K Certificate, Downgraded to C (sf); previously on July 29, 2010 Ba2 (sf) Placed Under Review for Possible Downgrade * US$4.181M Cl. L Certificate, Downgraded to C (sf); previously on July 29, 2010 Ba3 (sf) Placed Under Review for Possible Downgrade * US$2.786M Cl. M Certificate, Downgraded to C (sf); previously on July 29, 2010 B2 (sf) Placed Under Review for Possible Downgrade * US$2.787M Cl. N Certificate, Downgraded to C (sf); previously on July 29, 2010 B3 (sf) Placed Under Review for Possible Downgrade * US$1.180M Cl. P Certificate, Downgraded to C (sf); previously on July 29, 2010 Caa2 (sf) Placed Under Review for Possible Downgrade The downgrades are due to higher expected losses for the pool resulting from realized and anticipated losses from specially serviced and troubled loans. The confirmations and affirmations are due to key parameters, including Moody's loan to value ratio, Moody's stressed debt service coverage ratio and the Herfindahl Index (Herf), remaining within acceptable ranges. Based on Moody's current base expected loss, the credit enhancement levels for the affirmed classes are sufficient to maintain their existing ratings. On July 29, 2010, Moody's placed 15 classes on review for possible downgrade. This action concludes Moody's review. Moody's rating action reflects a cumulative base expected loss of 5.0% of the current balance. At last review, Moody's cumulative base expected loss was 3.0%. Moody's stressed scenario loss is 11.0% of the current balance. Moody's provides a current list of base and stress scenario losses for conduit and fusion CMBS transactions on moodys.com. Depending on the timing of loan payoffs and the severity and timing of losses from specially serviced loans, the credit enhancement level for investment grade classes could decline below the current levels. If future performance materially declines, the expected level of credit enhancement and the priority in the cash flow waterfall may be insufficient for the current ratings of these classes. Moody's analysis reflects a forward-looking view of the likely range of collateral performance over the medium term. From time to time, Moody's may, if warranted, change these expectations. Performance that falls outside an acceptable range of the key parameters may indicate that the collateral's credit quality is stronger or weaker than Moody's had anticipated during the current review. Even so, deviation from the expected range will not necessarily result in a rating action. There may be mitigating or offsetting factors to an improvement or decline in collateral performance, such as increased subordination levels due to amortization and loan payoffs or a decline in subordination due to realized losses. Primary sources of assumption uncertainty are the current stressed macroeconomic environment and continuing weakness in the commercial real estate and lending markets. Moody's currently views the commercial real estate market as stressed with further performance declines expected in the industrial, office, and retail sectors. Hotel performance has begun to rebound, albeit off a very weak base. Multifamily has also begun to rebound reflecting an improved supply / demand relationship. The availability of debt capital is improving with terms returning towards market norms. Job growth and housing price stability will be necessary precursors to commercial real estate recovery. Overall, Moody's central global scenario remains "hook-shaped" for 2010 and 2011; Moody's expects overall a sluggish recovery in most of the world's largest economies, returning to trend growth rate with elevated fiscal deficits and persistent unemployment levels. The principal methodology used in rating Merrill Lynch Mortgage Trust 2004-KEY2 is "CMBS: Moody's Approach to Rating Fusion Transactions" rating methodology published in April 2005. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found on Moody's website. Moody's review incorporated the use of the excel-based CMBS Conduit Model v 2.50 which is used for both conduit and fusion transactions. Conduit model results at the Aa2 level are driven by property type, Moody's actual and stressed DSCR, and Moody's property quality grade. Conduit model results at the B2 level are driven by a paydown analysis based on the individual loan level Moody's LTV ratio. Moody's Herf, a measure of loan level diversity, is a primary determinant of pool level diversity and has a greater impact on senior certificates. Other concentrations and correlations may be considered in our analysis. Based on the model pooled credit enhancement levels at Aa2 and B2, the remaining conduit classes are either interpolated between these two data points or determined based on a multiple or ratio of either of these two data points. For fusion deals, the credit enhancement for loans with investment-grade underlying ratings is melded with the conduit model credit enhancement into an overall model result. Fusion loan credit enhancement is based on the underlying rating of the loan which corresponds to a range of credit enhancement levels. Actual fusion credit enhancement levels are selected based on loan level diversity, pool leverage and other concentrations and correlations within the pool. Negative pooling, or adding credit enhancement at the underlying rating level, is incorporated for loans with similar underlying ratings in the same transaction. Moody's ratings are determined by a committee process that considers both quantitative and qualitative factors. Therefore, the rating outcome may differ from the model output. The rating action is a result of Moody's on-going surveillance of commercial mortgage backed securities (CMBS) transactions. Moody's monitors transactions on a monthly basis through two sets of quantitative tools -- MOST and CMM on Trepp -- and on a periodic basis through a comprehensive review. Moody's prior full review is summarized in a press release dated September 18, 2008. Please see the ratings tab on the issuer / entity page on moodys.com for the last rating action and the ratings history. Moody's Investors Service did not receive or take into account a third party due diligence report on the underlying assets or financial instruments related to the monitoring of this transaction in the past 6 months. As of the August 12, 2010 distribution date, the transaction's aggregate certificate balance has decreased by 25% to $833.4 million from $1.1 billion at securitization. The Certificates are collateralized by 106 mortgage loans ranging in size from less than 1% to 10% of the pool, with the top ten loans representing 36% of the pool. Sixteen loans, representing 12% of the pool, have defeased and are collateralized with U.S. Government securities. Defeasance at last review represented 13% of the pool. The pool contains one loan, representing 10% of the pool, which has an investment grade underlying rating. Twenty-eight loans, representing 22% of the pool, are on the master servicer's watchlist. The watchlist includes loans which meet certain portfolio review guidelines established as part of the CRE Finance Council monthly reporting package. As part of our ongoing monitoring of a transaction, Moody's reviews the watchlist to assess which loans have material issues that could impact performance. Four loans have been liquidated from the pool, resulting in an aggregate realized loss of $19.38 million. Ten loans, representing 7% of the pool, are currently in special servicing. The ten specially serviced loans are secured by a mix of property types. Moody's has estimated an aggregate $13.2 million loss for the specially serviced loans. Moody's has assumed a high default probability for seven poorly performing loan representing 4% of the pool and has estimated a $7.4 million loss from these troubled loans. Moody's rating action recognizes potential uncertainty around the timing and magnitude of loss from these troubled loans. As of the most recent remittance date, classes G through Q have experienced cumulative interest shortfalls totaling $1.3 million. Moody's anticipates that the pool will continue to experience interest shortfalls because of the high exposure to specially serviced loans. Interest shortfalls are caused by special servicing fees, including workout and liquidation fees, appraisal subordinate entitlement reductions and extraordinary trust expenses. Moody's was provided with full year 2009 and partial year 2010 operating results for 94% and 91%, respectively, of the pool. Excluding specially serviced and troubled loans, Moody's weighted average LTV is 88% compared to 91% at Moody's prior review. Moody's net cash flow reflects a weighted average haircut of 11.8% to the most recently available net operating income. Moody's value reflects a weighted average capitalization rate of 9.1%. Excluding specially serviced and troubled loans, Moody's actual and stressed DSCRs are 1.33X and 1.16X, respectively, compared to 1.37X and 1.15X at last review. Moody's actual DSCR is based on Moody's net cash flow and the loan's actual debt service. Moody's stressed DSCR is based on Moody's NCF and a 9.25% stressed rate applied to the loan balance. Moody's uses a variation of Herf to measure diversity of loan size, where a higher number represents greater diversity. Loan concentration has an important bearing on potential rating volatility, including risk of multiple notch downgrades under adverse circumstances. The credit neutral Herf score is 40. The pool has a Herf of 42 compared to 51 at Moody's prior review. The loan with an underlying rating is the Crossroads Center Loan, which is secured by the borrower's interest in a 905,300 square foot regional mall located in St. Cloud, Minnesota. The mall is anchored by J.C. Penney, Macy's and Sears. In-line occupancy was 98% as of March 2010 compared to 92% at last review. The loan has amortized 4% since last review. The loan sponsor is General Growth Properties. The property was included in GGP's bankruptcy filing but has been returned to the master servicer. The loan maturity was extended from August 1, 2010 to January 30, 2014. Moody's current underlying rating and stressed DSCR are Baa3 and 1.34X, respectively, compared to Baa2 and 1.32X at last review. The top three performing conduit loans represent 13% of the pool balance. The largest loan is the U-Haul Portfolio Loan, which is secured by two similarly sized loans which are cross- collateralized and cross-defaulted. The loans are secured by 34 U-Haul operated self-storage and retail properties located across 18 states and totaling 1.5 million square feet. The combined occupancy was 74% as of March 2010. Performance has declined since last review due to the occupancy decline. The loan has amortized 4% since last review. Moody's LTV and stressed DSCR are 70% and 1.43X, respectively, compared to 66% and 1.52X at last review. The second largest loan is the 1900 Ocean Apartments Loan, which is secured by a 266 unit multifamily property located in Long Beach, California. The property was 97% leased as of March 2010 compared to 93% at last review. The loan has amortized 3% since last review. Moody's LTV and stressed DSCR are 94% and 0.89X, respectively, essentially the same as at last review. The third largest loan is the 15 & 200 Meadowlands Parkway Loan, which is secured by two office properties located in Secaucus, New Jersey. The properties were 89% leased as of March 2010. The loan has amortized 3% since last review. Moody's LTV and stressed DSCR are 87% and 1.18X, respectively, compared to 96% and 1.07X at last review. MORGAN STANLEY: Moody's Takes Rating Actions on Various CDO Deals ----------------------------------------------------------------- Moody's Investors Service announced these rating actions on Morgan Stanley Managed ACES SPC Series 2007-22, a collateralized debt obligation transaction referencing a managed portfolio of 85 synthetic credit corporate exposures. Issuer: Morgan Stanley Managed ACES SPC Series 2007-22 (Ref. no: n94da) -- US$10,000,000 Class A-I Floating Rate Notes due December 20, 2012, Upgraded to Aa2 (sf); previously on February 9, 2009 Downgraded to Aa3 (sf) Issuer: Morgan Stanley Managed ACES SPC Series 2007-22 (Ref. no: n94cx) -- US$100,000,000 Class A-II Floating Rate Notes due December 20, 2012, Upgraded to Aa2 (sf); previously on February 9, 2009 Downgraded to Aa3 (sf) Issuer: Morgan Stanley Managed ACES SPC Series 2007-22 (Ref. no: n94du) -- US$5,000,000 Class D Floating Rate Notes due December 20, 2012, Upgraded to B2 (sf); previously on February 9, 2009 Downgraded to Caa2 (sf) Issuer: Morgan Stanley Managed ACES SPC Series 2007-22 (Ref. no: n9r0u) -- US$5,000,000 Class E Floating Rate Notes due December 20, 2012, Upgraded to Caa3 (sf); previously on February 9, 2009 Downgraded to Ca (sf) Ratings Rationale Moody's explained that the rating actions taken are the result of the shortened time to maturity of the CSO tranches and a substantial level of credit enhancement remaining. Offsetting these positive factors is the low credit quality of the reference portfolio. The underlying portfolio of synthetic credit corporate securities references senior secured loans with a recovery rate fixed at 70% in case of credit event. The 10 year weighted average rating factor of the portfolio is 2991, equivalent to B3. This compares to a 10-year WARF of 2947 from the last rating review. Since the last rating action, there have been credit events on General Growth Properties, Inc. and Visteon Corporation. The CSO notes have a remaining life of 2.3 years and respective remaining credit enhancement levels of 13.4% (Class A-I and Class A-II), 8.5% (Class D), and 6.7% (Class E). In the process of determining the rating action, Moody's took into account the results of a number of sensitivity analyses: (1) Removal of forward-looking measures -- The notching adjustment on each entity's rating due to credit watch or negative outlook was removed. This run generated a result that was one notch better (Class A-I, Class A-II, Class D), or not materially different (Class E) than the one modeled under the base case. (2) Use of Market Implied Ratings -- MIRs were used in place of the corporate fundamental ratings to derive the default probability of each corporate name in the reference portfolio. The gap between an MIR and a Moody's corporate fundamental rating is an indicator of the extent of the divergence of credit view between Moody's and the market. This run generated a result that was one notch better (Class A-I, Class A-II), not materially different (Class D), or one notch worse (Class E) than the one modeled under the base case. (3) Reduction of time to maturity -- Time to maturity was reduced by six months, all other things being equal. This run generated a result that was one (Class A-I, Class A-II, Class E), or two (Class D) notches better than the one modeled under the base case. (4) Stress on largest industry group -- All entities in the Hotels, Gaming, and Leisure were notched down by one, the largest sector concentration representing 14% of the portfolio notional. The result of this run showed no impact (Class A-I, Class A-II, Class D) or one notch worse (Class E) compared to the base case. In addition, to the quantitative factors that are explicitly modeled, qualitative factors are part of rating committee considerations. These qualitative factors include the structural protections in each transaction, the recent deal performance in the current market environment, the legal environment, and specific documentation features. All information available to rating committees, including macroeconomic forecasts, input from other Moody's analytical groups, market factors, and judgments regarding the nature and severity of credit stress on the transactions, may influence the final rating decision. Moody's analysis for this transaction is based on CDOROMv2.6. This model is available on moodys.com under Products and Solutions -- Analytical models, upon return of a signed free license agreement. Moody's Investors Service did not receive or take into account a third party due diligence report on the underlying assets or financial instruments related to the monitoring of this transaction in the past 6 months. Due to the impact of revised and updated key assumptions referenced in "Moody's Approach to Rating Corporate Synthetic Obligations", key model inputs used by Moody's in its analysis may be different from the manager/arranger's reported numbers. In particular, rating assumptions for all publicly rated corporate credits in the underlying portfolio have been adjusted for "Review for Possible Downgrade", "Review for Possible Upgrade", or "Negative Outlook". Moody's did not run a separate loss and cash flow analysis other than the one already done using the CDOROM model. For a description of the analysis, refer to the methodology and the CDOROM user guide on Moody's website. Moody's also ran a stress scenario defaulting all reference entities modeled at Caa1 and below representing 16.8% of the portfolio. The run generated an expected loss consistent with a rating two notches below the base case modelling for Class A-I, Class A-II, Class E, and four notches for Class D. Moody's analysis of corporate CSOs is subject to uncertainties, the primary sources of which includes complexity, governance and leverage. Although the CDOROM model capture many of the dynamics of the Corporate CSO structure, it remains a simplification of the complex reality. Of greatest concern are (a) variations over time in default rates for instruments with a given rating, (b) variations in recovery rates for instruments with particular seniority/security characteristics and (c) uncertainty about the default and recovery correlations characteristics of the reference pool. Similarly on the legal/structural side, the legal analysis although typically based in part on opinions (and sometimes interpretations) of legal experts at the time of issuance, is still subject to potential changes in law, case law and the interpretations of courts and (in some cases) regulatory authorities. The performance of this CSO is also dependent on on- going decisions made by one or several parties, including the Manager and the Trustee. Although the impact of these decisions is mitigated by structural constraints, anticipating the quality of these decisions necessarily introduces some level of uncertainty in Moody's assumptions. Given the tranched nature of Corporate CSO liabilities, rating transitions in the reference pool may have leveraged rating implications for the ratings of the Corporate CSO liabilities, thus leading to a high degree of volatility. All else being equal, the volatility is likely to be higher for more junior or thinner liabilities. The base case scenario modeled fits into the central macroeconomic scenario predicted by Moody's of a sluggish recovery scenario of the corporate universe. Should macroeconomic conditions evolve towards a more severe scenario such as a double dip recession, the CSO rating will likely be downgraded to an extent depending on the expected severity of the worsening conditions. MORGAN STANLEY: S&P Downgrades Ratings on Notes to 'CC' ------------------------------------------------------- Standard & Poor's Ratings Services lowered its ratings on the class IIIA, IIIB, IIIC, IIID notes issued by Morgan Stanley Managed ACES SPC's series 2006-6 and the class IIIA and IIIB notes issued by Morgan Stanley Managed ACES SPC's series 2006-9 to 'CC (sf)' from 'CCC- (sf)'. Both transactions are synthetic corporate investment-grade collateralized debt obligation (CDO) transactions. The downgrades follow a number of credit events within the transactions' portfolios of underlying corporate reference entities. S&P received final valuations on the credit events in the underlying portfolios, which indicated that losses in the portfolios caused these notes to incur principal losses. MOTOROLA INC: S&P Assigns 'BB+' Rating on Trust Certificates ------------------------------------------------------------ Standard & Poor's Ratings Services placed its 'BB+' rating on Corporate Backed Trust Certificates Motorola Debentures-Backed Series 2002-14 Trust's $25.5 million class A-1 certificates on CreditWatch with positive implications. S&P's rating on the class A-1 certificates is dependent on its rating on the underlying security, Motorola Inc.'s 6.5% debentures due Nov. 15, 2028 ('BB+/Watch Pos'). The CreditWatch placement follows S&P's Sept. 2, 2010, placement of its 'BB+' rating on the underlying security on CreditWatch with positive implications. S&P may take subsequent rating actions on the class A-1 certificates due to changes in its ratings assigned to the underlying security. MOTOROLA INC: S&P Puts BB+ Rating on Corporate Backed Trust Certs. ------------------------------------------------------------------ Standard & Poor's Ratings Services placed its 'BB+' rating on Corporate Backed Trust Certificates Motorola Debentures-Backed Series 2002-12's $44.4 million certificates on CreditWatch with positive implications. S&P's rating on the certificates is dependent on its rating on the underlying security, Motorola Inc.'s 5.22% notes due Oct. 1, 2097 ('BB+/Watch Pos'). The rating action follows S&P's Sept. 2, 2010, placement of its 'BB+' rating on the underlying security on CreditWatch with positive implications. S&P may take subsequent rating actions on the certificates due to changes in its ratings assigned to the underlying security. MT SPOKANE: Moody's Confirms Ratings on Subordinate Notes --------------------------------------------------------- Moody's has confirmed the ratings of the subordinate notes and certificates in the Mt. Spokane 2007-A LLC synthetic securitization of U.S. farm mortgage loans originated and serviced by Northwest Farm Credit Services. The securitization is a Credit Default Swap issued to cover any losses on the underlying reference pool of loans made to farmers primarily in the Pacific northwest region. The reference pool consists of real estate- secured first lien agricultural business loans. Under the terms of the Credit Default Swap agreement, Mt. Spokane 2007-A LLC is required to make payments to Northwest FCS for any defaulted loans occurring in the reference pool (net of recoveries) using the proceeds from the note issuance. The complete rating actions are: Issuer: Mt. Spokane 2007-A LLC -- Cl. D, Confirmed at Baa2 (sf); previously on March 3, 2010 Baa2 (sf) Placed Under Review for Possible Downgrade -- Cl. E, Confirmed at Ba2 (sf); previously on March 3, 2010 Ba2 (sf) Placed Under Review for Possible Downgrade -- Certificates, Confirmed at B2 (sf); previously on March 3, 2010 B2 (sf) Placed Under Review for Possible Downgrade Class D, E, and Certificates were placed under review for possible downgrade in March 2010 because of an increase in late stage delinquencies, bankruptcies, and foreclosures (collectively, nonperforming loans) in the underlying reference pool, which exposed the notes and certificates to potential losses. Over the last six months, the rate of delinquency growth has subsided, and performance of the reference pool has stabilized. Moody's expects Mt. Spokane 2007-A to incur lifetime cumulative net losses of approximately 0.42% of the original reference pool balance or 12.9% of the current note and certificate balance. Moody's projected lifetime cumulative net losses on the reference pool by assuming that 100% of the loans 60+ days past due, loans in foreclosure and loans to bankrupt obligors eventually will default. Moody's also assumed that over the remaining term of the transaction the current delinquency, bankruptcy, and foreclosure amounts will be replicated two more times. Based on these assumptions, Moody's evaluated the remaining net losses against the available credit enhancement provided by overcollateralization and subordination. If nonperforming loans increase from 0.97% to 1.05% of the current reference pool balance, or the recoveries on defaulted loans are less than 80%, the junior classes of notes would be under downgrade pressure. The primary source of uncertainty in the performance of this transaction is the current macroeconomic environment and its impact on farm revenues and real estate values in the states of Oregon, Idaho, Washington and Montana, which are the largest concentrations in this transaction. NEWSTAR TRUST: Fitch Affirms 'BBsf/LS4' Rating on Class E Notes --------------------------------------------------------------- Fitch Ratings has affirmed six classes of notes issued by NewStar Commercial Loan Trust 2007-1. Fitch has also assigned Loss Severity (LS) ratings to each class of notes. The rating actions are: -- $318,612,902 class A-1 notes affirmed at 'AAAsf/LS2'; Outlook Stable; -- $18,628,312 class A-2 notes affirmed at 'AAAsf/LS2'; Outlook Stable; -- $24,000,000 class B notes affirmed at 'AAsf/LS5'; Outlook Stable; -- $58,500,000 class C notes affirmed at 'Asf/LS3'; Outlook Negative; -- $27,000,000 class D notes affirmed at 'BBB+sf/SL5'; Outlook Negative; -- $29,100,000 class E notes affirmed at 'BBsf/LS4'; Outlook Negative. The affirmations reflect the relatively stable performance of the underlying loan portfolio since Fitch's last rating review in February 2009, in addition to the diversion of excess spread to protect the notes against charged-off loans. The notes of NewStar 2007-1 benefit from credit enhancement in the forms of collateral coverage, note subordination, and the application of excess spread via the additional principal amount (APA). Upon the occurrence of a loan charge off, the APA feature directs part or all of the excess interest otherwise available to the subordinate notes to pay down the senior-most notes in an amount equal to the aggregate balance of charged off assets in the portfolio. Although the underlying portfolio has experienced several charge- offs since Fitch's last review, the structure has fully compensated for any potential losses via the diversion of excess spread. The total commitment amount of charged-off loans was reported at approximately $21 million as of the Aug. 13, 2010 servicer report, compared to $0 as of the Feb. 13, 2009 report. As a result, between the May 2009 and February 2010 payment dates approximately $21.7 million of excess spread was diverted to redeem the senior notes, essentially eliminating the principal at risk of the charged-off loans. Fitch currently considers 16.9% of the performing portfolio to be rated 'CCC+' or below, down from 18% at the last review. Finally, the latest servicer report indicates a portfolio weighted average spread of 4.9%, an improvement from 4.1% as of the February 2009 report. Fitch believes that the current ratings remain indicative of the credit enhancement and structural protection available to each class of notes. The Outlook for the class A-1, A-2, and B notes remains Stable due to their relatively senior positions and the stable collateral performance to date. The Outlook for the class C, D, and E notes remains Negative. The roughly three years remaining in the transaction's reinvestment period presents a longer risk horizon for these notes. In addition, the class C, D, and E notes will be most vulnerable to the sizeable portion of underlying assets rated 'CCC+' or below. Each class of notes has been assigned a Loss Severity rating. The LS ratings indicate each tranche's potential loss severity given default, as evidenced by the ratio of tranche size to the base- case loss expectation for the collateral, as explained in Fitch's 'Criteria for Structured Finance Loss Severity Ratings'. The LS rating should always be considered in conjunction with the notes' long-term credit rating. NewStar 2007-1 is a collateralized debt obligation (CDO) that closed on June 5, 2007, and is managed by NewStar Financial, Inc. (NewStar). The transaction's reinvestment period is scheduled to end in May 2013. NewStar 2007-1 is secured by a portfolio comprised of 94.8% corporate loans, primarily to middle-market issuers, and 5.2% commercial real estate loans. Approximately 98.1% of the loans are first-lien, with the remaining 1.9% representing second-lien positions. The majority of these loans are not publicly rated. Instead, Fitch provides model-based shadow ratings for the performing loans. Information for the model-based shadow ratings was gathered from financial statements provided to Fitch by NewStar. NEWSTAR TRUST: Fitch Cuts $13.7MM of E Notes to 'BBsf/LS5' ---------------------------------------------------------- Fitch Ratings has affirmed five classes and downgraded one class of notes issued by NewStar Commercial Loan Trust 2006-1. Fitch has also revised several Rating Outlooks and assigned Loss Severity ratings to each class of notes. The rating actions are: -- $308,964,375 class A-1 notes affirmed at 'AAAsf/LS2'; Outlook to Negative from Stable; -- $5,160,890 class A-2 notes affirmed at 'AAAsf/LS2'; Outlook to Negative from Stable; -- $22,500,000 class B notes affirmed at 'AAsf/LS5'; Outlook to Negative from Stable; -- $35,000,000 class C notes affirmed at 'Asf/LS4'; Outlook to Negative from Stable; -- $25,000,000 class D notes affirmed at 'BBBsf/LS5'; Outlook Negative; -- $13,750,000 class E notes downgraded to 'BBsf/LS5' from 'BBB- sf'; Outlook Negative. The affirmations reflect the credit enhancement available to the class A-1 and class A-2 notes (collectively, the class A notes) and the class B, C, and D notes in the forms of collateral coverage, note subordination, and the application of excess spread via the additional principal amount (APA). Upon the occurrence of a loan charge off, the APA feature directs part or all of the excess interest otherwise available to the subordinate notes to pay down the senior-most notes in an amount equal to the aggregate balance of charged off assets in the portfolio. At the last payment date on June 30, 2010, approximately $11.1 million of excess interest proceeds was paid toward class A principal in payment of the APA. As the transaction remains in its reinvestment period, this distribution represented the only principal redemption of the class A notes to date, aside from some minimal distributions from the class A-2 funding account. The availability of excess spread to redeem the senior notes has helped mitigate the effects of the credit deterioration in the underlying portfolio on the class A, B, C, and D notes. However, Fitch has assigned Negative Outlooks to these notes to reflect the deteriorating credit quality of the underlying portfolio. The downgrade of the class E notes was driven by the negative credit migration of the portfolio since Fitch's last rating review in February 2009. As of the June 13, 2010 servicer report, the total commitment amount of charged-off loans was reported at $22.8 million, compared to $0 as of the Dec. 13, 2008 report. The remaining APA, after accounting for recoveries received to date on charged-off loans and the application of excess spread towards class A principal, now stands at approximately $10 million. Fitch currently considers 33.2% of the performing portfolio to be rated 'CCC+' or below, up from 11.8% at the last review. The Outlook remains Negative for the class E notes. Each class of notes has been assigned a Loss Severity rating. The LS ratings indicate each tranche's potential loss severity given default, as evidenced by the ratio of tranche size to the base- case loss expectation for the collateral, as explained in Fitch's 'Criteria for Structured Finance Loss Severity Ratings'. The LS rating should always be considered in conjunction with the notes' long-term credit rating. NewStar 2006-1 is a collateralized debt obligation (CDO) that closed on June 8, 2006, and is managed by NewStar Financial, Inc. (NewStar). The transaction's reinvestment period is scheduled to end in June 2011. NewStar 2006-1 is secured by a portfolio comprised of 95.1% corporate loans, primarily to middle-market issuers, and 4.9% commercial real estate loans. Approximately 97.8% of the loans are first-lien, with the remaining 2.2% representing second-lien positions. The majority of these loans are not publicly rated. Instead, Fitch provides model-based shadow ratings for the performing loans. Information for the model-based shadow ratings was gathered from financial statements provided to Fitch by NewStar. NEWSTAR TRUST: Fitch Cuts $24MM of Class E Notes to 'CCsf/RR5' -------------------------------------------------------------- Fitch Ratings has affirmed three and downgraded three classes of notes issued by NewStar Trust 2005-1. Fitch has also revised several Rating Outlooks and assigned a Loss Severity (LS) rating or a Recovery Rating (RR) to each class of notes. The rating actions are: -- $97,505,573 class A-1 notes affirmed at 'AAAsf/LS3'; Outlook to Negative from Stable; -- $49,774,735 class A-2 notes affirmed at 'AAAsf/LS3'; Outlook to Negative from Stable; -- $18,682,557 class B notes affirmed at 'AAsf/LS5'; Outlook to Negative from Stable; -- $39,233,370 class C notes downgraded to 'BBsf/LS4' from 'Asf'; Outlook Negative; -- $24,287,324 class D notes downgraded to 'CCCsf/RR2' from 'BBB-sf'; -- $24,287,324 class E notes downgraded to 'CCsf/RR5' from 'Bsf'. The affirmations reflect the credit enhancement available to the class A-1 and class A-2 notes (collectively, the class A notes) and the class B notes in the forms of collateral coverage, note subordination, and the application of excess spread via the additional principal amount (APA). Upon the occurrence of a loan charge off, the APA feature directs part or all of the excess interest otherwise available to the subordinate notes to pay down the senior-most notes in an amount equal to the aggregate balance of charged off assets in the portfolio. At the last payment date on July 26, 2010, approximately $36.3 million was paid toward class A principal, of which $2.4 million represented excess interest proceeds. To date, Fitch calculates that approximately $9.3 million of excess interest proceeds have been used to pay class A principal. In total, the class A notes have been paid down 37.7% of their initial principal balance, with the majority of the paydowns occurring since Fitch's last rating review in February 2009. The principal redemption of the class A notes has resulted in increased credit enhancement levels for both the class A and class B notes, helping to mitigate the credit deterioration in the underlying portfolio. The downgrades of the class C, class D, and class E notes were driven by the continuing negative credit migration that has occurred since Fitch's last rating review in February 2009. As of the July 13, 2010 servicer report, the total commitment amount of charged-off loans was reported at $42.1 million, compared to $0 as of the Jan. 13, 2009 report. The remaining APA, after accounting for recoveries received to date on charged-off loans and the application of excess spread towards class A principal, now stands at $32.1 million. Fitch currently considers 49.7% of the performing portfolio to be rated 'CCC+' or below, up from 32.1% at the last review. Fitch recognizes the risks associated with the significant concentration of commercial real estate loans in the underlying portfolio. Exposure to this troubled sector represents approximately 31.3% of the performing portfolio. Additionally, Fitch recognizes the increasing obligor concentration in the underlying portfolio, as 45 performing obligors and five charged- off obligors remain. Due to these risk factors, Fitch has assigned Negative Outlooks to all of the notes. The class A, B, and C notes have been assigned Loss Severity ratings. The LS ratings indicate each tranche's potential loss severity given default, as evidenced by the ratio of tranche size to the base-case loss expectation for the collateral, as explained in Fitch's 'Criteria for Structured Finance Loss Severity Ratings'. The LS rating should always be considered in conjunction with the notes' long-term credit rating. The class D and E notes were each assigned a Recovery Rating based on the total discounted future cash flows projected to be available to these bonds in a base-case default scenario. Discounted cash flows for the class D notes of approximately $17.9 million yielded an ultimate recovery projection in a range between 71% and 90%. Discounted cash flows for the class E notes of approximately $4.5 million yielded an ultimate recovery projection in a range between 11% and 30%. These recovery estimates are representative of an 'RR2' and an 'RR5', respectively, on Fitch's Recovery Rating scale. Recovery Ratings are designed to provide a forward-looking estimate of recoveries on currently distressed or defaulted structured finance securities rated 'CCC' or below. For further detail on Recovery Ratings, see Fitch's reports 'Global Rating Criteria for Corporate CDOs' and 'Criteria for Structured Finance Recovery Ratings'. NewStar 2005-1 is a collateralized debt obligation that closed on Aug. 10, 2005, and is managed by NewStar Financial, Inc. The transaction's reinvestment period ended in October 2008. NewStar 2005-1 is secured by a portfolio comprised of 68.7% corporate loans, primarily to middle-market issuers, and 31.3% commercial real estate loans. Approximately 96.1% of the loans are first- lien, with the remaining 3.9% representing second-lien positions. The majority of these loans are not publicly rated. Instead, Fitch provides model-based shadow ratings for the performing loans. Information for the model-based shadow ratings was gathered from financial statements provided to Fitch by NewStar. NEXTSTUDENT MASTER: Fitch Withdraws 'B' Rating on Two Notes ----------------------------------------------------------- Fitch Ratings withdraws the ratings on notes from NextStudent Master Trust I auction-rate student loan-backed notes series 2006- 1 and series 2007-1. The underlying collateral has been liquidated at the request of the investors following an event of default. Fitch withdraws the following ratings which were placed on Rating Watch Negative on March 30, 2010: -- Series 2006A-1 notes 'BBB'; -- Series 2006A-2 notes 'BBB'; -- Series 2006A-3 notes 'BBB'; -- Series 2006A-4 notes 'BBB'; -- Series 2006A-5 notes 'BBB'; -- Series 2006A-6 notes 'BBB'; -- Series 2006A-7 notes 'BBB'; -- Series 2006A-8 notes 'BBB'; -- Series 2007A-1 notes 'BBB'; -- Series 2007A-2 notes 'BBB'; -- Series 2007A-3 notes 'BBB'; -- Series 2007A-4 notes 'BBB'; -- Series 2007A-5 notes 'BBB'; -- Series 2007A-6 notes 'BBB'; -- Series 2007A-7 notes 'BBB'; -- Series 2007A-8 notes 'BBB'; -- Series 2007A-9 notes 'BBB'; -- Series 2007A-10 notes 'BBB'; -- Series 2007A-11 notes 'BBB'; -- Series 2007A-12 notes 'BBB'; -- Series 2007A-13 notes 'BBB'; -- Series 2007A-14 notes 'BBB'; -- Series 2007A-15 notes 'BBB'. -- Series 2006B-1 notes 'B'; -- Series 2007B-1 notes 'B'. NEXTSTUDENT MASTER: Moody's Downgrades Ratings on 23 Classes ------------------------------------------------------------ Moody's Investors Service has downgraded the ratings of 23 classes of senior notes from NextStudent Master Trust I. The original underlying collateral consisted of loans originated under the Federal Family Education Loan Program, i.e. government guaranteed student loans. Ratings Rationale The downgrades of the senior notes were prompted by the acceleration and liquidation of the student loan collateral following several events of default under the trust indenture. Proceeds from the sale of the underlying collateral at an auction, which took place on July 21, 2010, were applied to repay approximately 93.6% of the senior notes outstanding at the time. After the September 10 2010 payment date, approximately $98.8 million of the senior notes and $80.6 million of the subordinates notes remained outstanding. Neither classes of notes are accruing any interest. The securitization trust has small claims against NextStudent Inc., the original master servicer and administrator of the trust, and another transaction party. Although these amounts would be used to reduce a portion of the senior notes, a full repayment of the notes is not possible. Moody's Investors Service did not receive or take into account a third party due diligence report on the underlying assets or financial instruments related to the monitoring of this transaction in the past 6 months. Ratings -- 2006A-1, Downgraded to C (sf); previously on July 9, 2010 Downgraded to Caa1 (sf) and Placed Under Review for Possible Downgrade -- 2006A-2, Downgraded to C (sf); previously on July 9, 2010 Downgraded to Caa1 (sf) and Placed Under Review for Possible Downgrade -- 2006A-3, Downgraded to C (sf); previously on July 9, 2010 Downgraded to Caa1 (sf) and Placed Under Review for Possible Downgrade -- 2006A-4, Downgraded to C (sf); previously on July 9, 2010 Downgraded to Caa1 (sf) and Placed Under Review for Possible Downgrade -- 2006A-5, Downgraded to C (sf); previously on July 9, 2010 Downgraded to Caa1 (sf) and Placed Under Review for Possible Downgrade -- 2006A-6, Downgraded to C (sf); previously on July 9, 2010 Downgraded to Caa1 (sf) and Placed Under Review for Possible Downgrade -- 2006A-7, Downgraded to C (sf); previously on July 9, 2010 Downgraded to Caa1 (sf) and Placed Under Review for Possible Downgrade -- 2006A-8, Downgraded to C (sf); previously on July 9, 2010 Downgraded to Caa1 (sf) and Placed Under Review for Possible Downgrade -- 2007A-1, Downgraded to C (sf); previously on July 9, 2010 Downgraded to Caa1 (sf) and Placed Under Review for Possible Downgrade -- 2007A-2, Downgraded to C (sf); previously on July 9, 2010 Downgraded to Caa1 (sf) and Placed Under Review for Possible Downgrade -- 2007A-3, Downgraded to C (sf); previously on July 9, 2010 Downgraded to Caa1 (sf) and Placed Under Review for Possible Downgrade -- 2007A-4, Downgraded to C (sf); previously on July 9, 2010 Downgraded to Caa1 (sf) and Placed Under Review for Possible Downgrade -- 2007A-5, Downgraded to C (sf); previously on July 9, 2010 Downgraded to Caa1 (sf) and Placed Under Review for Possible Downgrade -- 2007A-6, Downgraded to C (sf); previously on July 9, 2010 Downgraded to Caa1 (sf) and Placed Under Review for Possible Downgrade -- 2007A-7, Downgraded to C (sf); previously on July 9, 2010 Downgraded to Caa1 (sf) and Placed Under Review for Possible Downgrade -- 2007A-8, Downgraded to C (sf); previously on July 9, 2010 Downgraded to Caa1 (sf) and Placed Under Review for Possible Downgrade -- 2007A-9, Downgraded to C (sf); previously on July 9, 2010 Downgraded to Caa1 (sf) and Placed Under Review for Possible Downgrade -- 2007A-10, Downgraded to C (sf); previously on July 9, 2010 Downgraded to Caa1 (sf) and Placed Under Review for Possible Downgrade -- 2007A-11, Downgraded to C (sf); previously on July 9, 2010 Downgraded to Caa1 (sf) and Placed Under Review for Possible Downgrade -- 2007A-12, Downgraded to C (sf); previously on July 9, 2010 Downgraded to Caa1 (sf) and Placed Under Review for Possible Downgrade -- 2007A-13, Downgraded to C (sf); previously on July 9, 2010 Downgraded to Caa1 (sf) and Placed Under Review for Possible Downgrade -- 2007A-14, Downgraded to C (sf); previously on July 9, 2010 Downgraded to Caa1 (sf) and Placed Under Review for Possible Downgrade -- 2007A-15, Downgraded to C (sf); previously on July 9, 2010 Downgraded to Caa1 (sf) and Placed Under Review for Possible Downgrade NORTH STREET: S&P Downgrades Class G Notes Ratings to 'CC' ---------------------------------------------------------- Standard & Poor's Ratings Services lowered its rating on the class G notes issued by North Street Referenced Linked Notes 2005-7 Ltd., a synthetic collateralized debt obligation (CDO) transaction backed by residential mortgage-backed securities, to 'CC (sf)' from 'CCC- (sf)'. At the same time, S&P affirmed its 'CCC- (sf)' ratings on the class A, B-1, B-2, C, D, E, and F notes from the same transaction. The downgrade follows a number of write-downs in the underlying reference portfolio, which has caused the class G notes to incur partial principal losses. OCWEN RESIDENTIAL: Moody's Cuts Ratings on Three 1998-R1 Certs. --------------------------------------------------------------- Moody's Investors Service has downgraded the ratings of 3 certificates, backed by reperforming residential mortgage loans, issued by Ocwen Residential MBS Corporation Series 1998-R1. Issuer: Ocwen Residential MBS Corporation Series 1998-R1 -- B-1, Downgraded to B1 (sf); previously on March 26, 1998 Assigned Aa2 (sf) -- B-2, Downgraded to Ca (sf); previously on July 27, 2004 Downgraded to A3 (sf) -- B-3, Downgraded to C (sf); previously on July 27, 2004 Downgraded to B3 (sf) Ratings Rationale The rating actions are a result of the deterioration in the performance of the underlying mortgage pool backing the transaction. The collateral backing this transaction consists of fully amortizing loans originated under one of the insurance programs of the U.S. Department of Housing and Urban Development (HUD). Following default, these loans were repurchased by HUD and subsequently sold in a series of public auctions. Moody's estimated loss on the underlying mortgage pool by multiplying lifetime pipeline loss expected from the related pool by a factor of 1.75. The lifetime pipeline loss was derived based on lifetime roll rates to default of 85% for 60-day delinquencies, 95% for 90+ day delinquencies, 100% for loans in foreclosure, and 100% for loans where the homes are held-for-sale, each applied with a severity assumption of 90%. To assess the rating implications of the updated loss level on rated certificates, Moody's analyzed each certificate's loss coverage ratio based on subordination compared to the updated pool loss. The certificates that do not have enough loss coverage ratio to maintain current ratings based on the new loss level have been downgraded. The primary source of assumption uncertainty is the current macroeconomic environment, in which unemployment remains at high levels, and weakness persists in the housing market. Moody's notes an increasing potential for a double-dip recession, which could cause a further 20% decline in home prices (versus its baseline assumption of roughly 5% further decline). Overall, Moody's assumes a further 5% decline in home prices with stabilization in early 2011, accompanied by continued stress in national employment levels through that timeframe. As a part of the sensitivity analysis, Moody's stressed the expected loss on the collateral pool by an additional 10% and found that ratings on the certificates do not change. Moody's Investors Service did not receive or take into account a third party due diligence report on the underlying assets or financial instruments related to the monitoring of this transaction in the past 6 months. PNC MORTGAGE: Moody's Junks Three Certificate Classes ----------------------------------------------------- Moody's Investors Service downgraded the ratings of five classes and affirmed eight classes of PNC Mortgage Acceptance Corp., Commercial Mortgage Pass-Through Certificates, Series 2000-C2 as follows: * Cl. X Certificate, Affirmed at Aaa (sf); previously on Oct. 23, 2000 Definitive Rating Assigned Aaa (sf) * US$18.230M Cl. B Certificate, Affirmed at Aaa (sf); previously on April 4, 2005 Upgraded to Aaa (sf) * US$48.423M Cl. C Certificate, Affirmed at Aaa (sf); previously on Oct. 10, 2006 Upgraded to Aaa (sf) * US$13.452M Cl. D Certificate, Affirmed at Aaa (sf); previously on July 9, 2007 Upgraded to Aaa (sf) * US$13.451M Cl. E Certificate, Affirmed at Aaa (sf); previously on Sept. 25, 2008 Upgraded to Aaa (sf) * US$18.831M Cl. F Certificate, Affirmed at Aa1 (sf); previously on Sept. 25, 2008 Upgraded to Aa1 (sf) * US$16.141M Cl. G Certificate, Affirmed at Aa3 (sf); previously on Sept. 25, 2008 Upgraded to Aa3 (sf) * US$18.832M Cl. H Certificate, Affirmed at Baa1 (sf); previously on Oct. 3, 2007 Upgraded to Baa1 (sf) * US$29.592M Cl. J Certificate, Downgraded to B1 (sf); previously on Oct. 3, 2007 Upgraded to Ba1 (sf) * US$8.071M Cl. K Certificate, Downgraded to B3 (sf); previously on Oct. 23, 2000 Definitive Rating Assigned Ba3 (sf) * US$8.071M Cl. L Certificate, Downgraded to Ca (sf); previously on Oct. 23, 2000 Definitive Rating Assigned B1 (sf) * US$10.761M Cl. M Certificate, Downgraded to C (sf); previously on Oct. 23, 2000 Definitive Rating Assigned B2 (sf) * US$5.380M Cl. N Certificate, Downgraded to C (sf); previously on Oct. 23, 2000 Definitive Rating Assigned B3 (sf) The downgrades are due to higher expected losses from the pool resulting from realized and anticipated losses from specially serviced and poorly performing loans, interest shortfalls and refinance risk associated with loans maturing in an adverse economic environment. Twenty-three loans, or 75% of the non- defeased pool, have or will mature within the next 36 months. Eight of these loans, representing 37% of the pool, have a Moody's stressed debt service coverage ratio less than 1.0X. The affirmations are due to key parameters, including Moody's loan to value ratio, Moody's stressed debt service coverage ratio and the Herfindahl Index, remaining within acceptable ranges. Based on our current base expected loss, the credit enhancement levels for the affirmed classes are sufficient to maintain their existing ratings. Moody's rating action reflects a cumulative base expected loss of 15.4% of the current balance. At last review, Moody's cumulative base expected loss was 1.3%. Moody's stressed scenario loss is 18.6% of the current balance. Moody's provides a current list of base and stress scenario losses for conduit and fusion CMBS transactions on moodys.com. Depending on the timing of loan payoffs and the severity and timing of losses from specially serviced loans, the credit enhancement level for investment grade classes could decline below the current levels. If future performance materially declines, the expected level of credit enhancement and the priority in the cash flow waterfall may be insufficient for the current ratings of these classes. Moody's analysis reflects a forward-looking view of the likely range of collateral performance over the medium term. From time to time, Moody's may, if warranted, change these expectations. Performance that falls outside an acceptable range of the key parameters may indicate that the collateral's credit quality is stronger or weaker than Moody's had anticipated during the current review. Even so, deviation from the expected range will not necessarily result in a rating action. There may be mitigating or offsetting factors to an improvement or decline in collateral performance, such as increased subordination levels due to amortization and loan payoffs or a decline in subordination due to realized losses. Primary sources of assumption uncertainty are the current stressed macroeconomic environment and continuing weakness in the commercial real estate and lending markets. Moody's currently views the commercial real estate market as stressed with further performance declines expected in the industrial, office, and retail sectors. Hotel performance has begun to rebound, albeit off a very weak base. Multifamily has also begun to rebound reflecting an improved supply / demand relationship. The availability of debt capital is improving with terms returning towards market norms. Job growth and housing price stability will be necessary precursors to commercial real estate recovery. Overall, Moody's central global scenario remains "hook-shaped" for 2010 and 2011; Moody's expects overall a sluggish recovery in most of the world's largest economies, returning to trend growth rate with elevated fiscal deficits and persistent unemployment levels. The principal methodologies used in rating PNC Mortgage Acceptance Corp., Series 2000-C2 were "CMBS: Moody's Approach to Conduit Transactions" published in September 2000 and "Moody's Approach to Rating Large Loan/Single Borrower Transactions" published in July 2000. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found on Moody's website. Moody's review incorporated the use of the Excel-based CMBS Conduit Model v 2.50 which is used for both conduit and fusion transactions. Conduit model results at the Aa2 level are driven by property type, Moody's actual and stressed DSCR, and Moody's property quality grade. Conduit model results at the B2 level are driven by a paydown analysis based on the individual loan level Moody's LTV ratio. Moody's Herf score, a measure of loan level diversity, is a primary determinant of pool level diversity and has a greater impact on senior certificates. Other concentrations and correlations may be considered in our analysis. Based on the model pooled credit enhancement levels at Aa2 and B2, the remaining conduit classes are either interpolated between these two data points or determined based on a multiple or ratio of either of these two data points. For fusion deals, the credit enhancement for loans with investment-grade underlying ratings is melded with the conduit model credit enhancement into an overall model result. Fusion loan credit enhancement is based on the underlying rating of the loan which corresponds to a range of credit enhancement levels. Actual fusion credit enhancement levels are selected based on loan level diversity, pool leverage and other concentrations and correlations within the pool. Negative pooling, or adding credit enhancement at the underlying rating level, is incorporated for loans with similar underlying ratings in the same transaction. In cases where the Herf falls below 20, Moody's also employs the large loan/single borrower methodology. This methodology uses the Excel-based Large Loan Model v 8.0 and then reconciles and weights the results from the two models in formulating a rating recommendation. The large loan model derives credit enhancement levels based on an aggregation of adjusted loan level proceeds derived from Moody's loan level LTV ratios. Major adjustments to determining proceeds include leverage, loan structure, property type, and sponsorship. These aggregated proceeds are then further adjusted for any pooling benefits associated with loan level diversity, other concentrations and correlations. Moody's ratings are determined by a committee process that considers both quantitative and qualitative factors. Therefore, the rating outcome may differ from the model output. The rating action is a result of Moody's on-going surveillance of commercial mortgage backed securities transactions. Moody's monitors transactions on a monthly basis through two sets of quantitative tools -- MOST and CMM on Trepp -- and on a periodic basis through a comprehensive review. Moody's prior full review is summarized in a press release dated October 3, 2007. Moody's Investors Service received and took into account one or more third party due diligence reports on the underlying assets or financial instruments in this transaction and the due diligence reports had a neutral impact on the ratings. As of the August 12, 2010 distribution date, the transaction's aggregate certificate balance has decreased by 79% to $223.82 million from $1.08 billion at securitization. The Certificates are collateralized by 35 mortgage loans ranging in size from less than 1% to 15% of the pool, with the top ten loans representing 65% of the pool. One loan, representing 5% of the pool, has defeased and is collateralized with U.S. Government securities. Defeasance at last review represented 28% of the pool. Ten loans, representing 27% of the pool, are on the master servicer's watchlist. The watchlist includes loans which meet certain portfolio review guidelines established as part of the CRE Finance Council monthly reporting package. As part of our ongoing monitoring of a transaction, Moody's reviews the watchlist to assess which loans have material issues that could impact performance. Ten loans have been liquidated from the pool, resulting in an aggregate realized loss of $7.16 million. Sixteen loans, representing 56% of the pool, are currently in special servicing. The largest specially serviced loan is the AppleTree Business Park Loan, which is secured by a 435,000 square foot office complex located in Cheektowaga, New York, a suburb of Buffalo. The loan was transferred into special servicing in June 2010 due to imminent default. The loan has passed its September 1, 2010 anticipated repayment date (ARD) and is current. The property was 90% leased as of March 2010, compared to 84% at last full review. The second largest specially serviced loan is the 4351 N Atlantic Road Loan, which is secured by a 236,770 square foot single tenant office building located in Auburn Hills, Michigan. Continental Teves leases 192,200 square feet of the space through July 2020. The loan transferred into special servicing in June 2010 due to the borrower's inability to repay the loan at maturity in July 2010. The borrower has been working to refinance the loan and is marketing the property for sale. The third largest specially serviced loan is the Northside Marketplace Loan, which is secured by a 189,299 square foot retail property located in Nashville, Tennessee. The loan transferred into special servicing in January 2010 due to imminent payment default and is currently 90+ days delinquent. The loan passed an anticipated repayment date of September 1, 2010 and the borrower is seeking a loan modification. The remaining 13 specially serviced loans are secured by a mix of office, hotel, retail and multifamily properties. The master servicer has recognized an aggregate $10.2 million appraisal reduction for four of the specially serviced loans. Moody's has estimated an aggregate $30.4 million loss (32% expected loss on average) for the specially serviced loans. Moody's has assumed a high default probability for two poorly performing loans representing 5% of the pool and has estimated a $2.1 million loss from these troubled loans. Based on the most recent remittance statement, Classes M through O have experienced cumulative interest shortfalls totaling $1.0 million. Moody's anticipates that the pool will continue to experience interest shortfalls because of the high exposure to specially serviced loans. Interest shortfalls are caused by special servicing fees, including workout and liquidation fees, appraisal subordinate entitlement reductions and extraordinary trust expenses. Moody's was provided with full-year 2009 and partial-year 2010 operating results for 94% and 21%, respectively, of the non- defeased pool. Excluding specially serviced and troubled loans, Moody's weighted average LTV is 83% compared to 79% at Moody's prior full review. Moody's net cash flow reflects a weighted average haircut of 14.4% to the most recently available net operating income. Moody's value reflects a weighted average capitalization rate of 10.2%. Excluding specially serviced and troubled loans, Moody's actual and stressed DSCRs are 1.17X and 1.45X, respectively, compared to 1.29X and 1.42X at last full review. Moody's actual DSCR is based on Moody's net cash flow and the loan's actual debt service. Moody's stressed DSCR is based on Moody's NCF and a 9.25% stressed rate applied to the loan balance. Moody's uses a variation of Herf to measure diversity of loan size, where a higher number represents greater diversity. Loan concentration has an important bearing on potential rating volatility, including risk of multiple notch downgrades under adverse circumstances. The credit neutral Herf score is 40. The pool has a Herf of 13 compared to 35 at Moody's prior full review. The decline in Herf has been partially offset by increased credit support due to loan payoffs and amortization. The pool has paid down 57% since Moody's last full review. The top three performing conduit loans represent 19% of the pool balance. The largest loan is the Sweetheart Cup Distribution Center Loan, which is secured by a 1.03 million square foot industrial building located in Hampstead, Maryland. The property is fully occupied by a single tenant, Solo Cup Company, through July 2020. The loan has amortized 4% since last review and is on the watchlist due to an anticipated repayment date of October 1, 2010. Although property performance has been stable since securitization, Moody's analysis reflects a stressed cash flow due to a challenged refinance environment and our concerns about single tenant exposure. Moody's LTV and stressed DSCR are 90% and 1.34X, respectively, compared to 81% and 1.30X at last review. The second largest loan is The Waterford at Portage Loan, which is secured by two multifamily properties located in Akron, Ohio. This loan is currently on the master servicer's watchlist due to a low DSCR. Property performance has declined primarily due to increased operating expenses and a decline in occupancy. The properties are currently 87% occupied compared to 90% at last full review. The loan has amortized 4% since last review and matures in July 2015. Moody's believes that there is a high probability that this loan may default prior to loan maturity. Moody's LTV and stressed DSCR are 151% and 0.68X, respectively, compared to 117% and 0.88X at last review. The third largest loan is The Waterford at Spencer Oaks Apartments Loan, which is secured by a multifamily property located in Denton, Texas. This loan is currently on the master servicer's watchlist due to a low DSCR. Property performance remains in line with Moody's last full review and as of May 2010, the property was 92% leased, compared to 86% at last full review. The loan has amortized 4% since last review and matures in June 2015. Moody's LTV and stressed DSCR are 102% and 1.01X, respectively, compared to 107% and 0.94X at last review. RFC CDO: Deterioration in Credit Quality Cues Moody's Junk Rating ----------------------------------------------------------------- Moody's has downgraded 14 classes of Notes issued by RFC CDO 2007- 1, Ltd., due to the deterioration in the credit quality of the underlying portfolio as evidenced by an increase in the weighted average rating factor, and increase in Defaulted Interest. The rating action, which concludes our review, is the result of Moody's on-going surveillance of commercial real estate collateralized debt obligation transactions. * Cl. A-1 Notes, Downgraded to B2 (sf); previously on Nov. 13, 2009 Aaa (sf) Placed Under Review for Possible Downgrade * Cl. A-1R Notes, Downgraded to B2 (sf); previously on Nov. 13, 2009 Aaa (sf) Placed Under Review for Possible Downgrade * Cl. A-2 Notes, Downgraded to Caa3 (sf); previously on Nov. 13, 2009 Baa2 (sf) Placed Under Review for Possible Downgrade * Cl. A-2R Notes, Downgraded to Caa3 (sf); previously on Nov. 13, 2009 Baa2 (sf) Placed Under Review for Possible Downgrade * Cl. B Notes, Downgraded to Ca (sf); previously on Nov. 13, 2009 B1 (sf) Placed Under Review for Possible Downgrade * Cl. C Notes, Downgraded to C (sf); previously on Nov. 13, 2009 Caa1 (sf) Placed Under Review for Possible Downgrade * Cl. D Notes, Downgraded to C (sf); previously on Nov. 13, 2009 Caa2 (sf) Placed Under Review for Possible Downgrade * Cl. E Notes, Downgraded to C (sf); previously on Nov. 13, 2009 Caa2 (sf) Placed Under Review for Possible Downgrade * Cl. F Notes, Downgraded to C (sf); previously on Nov. 13, 2009 Caa2 (sf) Placed Under Review for Possible Downgrade * Cl. G Notes, Downgraded to C (sf); previously on Nov. 13, 2009 Caa3 (sf) Placed Under Review for Possible Downgrade * Cl. H Notes, Downgraded to C (sf); previously on Nov. 13, 2009 Caa3 (sf) Placed Under Review for Possible Downgrade * Cl. J Notes, Downgraded to C (sf); previously on Nov. 13, 2009 Caa3 (sf) Placed Under Review for Possible Downgrade * Cl. K Notes, Downgraded to C (sf); previously on Nov. 13, 2009 Caa3 (sf) Placed Under Review for Possible Downgrade * Cl. L Notes, Downgraded to C (sf); previously on Nov. 13, 2009 Caa3 (sf) Placed Under Review for Possible Downgrade RFC CDO 2007-1 Ltd. is a CRE CDO transaction backed by a portfolio of whole loans, B-Notes, commercial mortgage backed securities, mezzanine loans and collateralized debt obligation. As of the July 30, 2010 Trustee report, the aggregate Note balance of the transaction has decreased to $919.8 million from $1 billion at issuance, with the paydown directed to the Class A-1 and A-1R Notes, as a result of failing the Class A/B, Class C/D/E, and Class F/G/H Par Value Tests. There are twenty-three assets with par balance of $262.6 million that are considered Defaulted Interest as of the July 30, 2010 Trustee report. Moody's expects significant losses from those Defaulted Interest to occur 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, weighted average recovery rate, and Moody's asset correlation. 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 credit estimates for the non-Moody's rated collateral. For non-CUSIP collateral, Moody's is eliminating the additional default probability stress applied to corporate debt in CDOROM v2.6 as we expect the underlying non- CUSIP collateral to experience lower default rates and higher recovery compared to corporate debt due to the nature of the secured real estate collateral. The bottom-dollar WARF is a measure of the default probability within a collateral pool. Moody's modeled a bottom-dollar WARF of 8,097 compared to 4,434 at last review. The distribution of current ratings and credit estimates is as follows: Baa1-Baa3, Ba1-Ba3, B1-B3, and Caa1-C. WAL acts to adjust the probability of default of the reference obligations in the pool for time. Moody's modeled to a WAL of 2.5 years compared to 8.0 years at last review. WARR is the par-weighted average of the mean recovery values for the collateral assets in the pool. Moody's modeled a fixed WARR of 29.8% compared to 34.0% at last review. MAC is a single factor that describes the pair-wise asset correlation to the default distribution among the instruments within the collateral pool. For non-CUSIP collateral, Moody's is reducing the maximum over concentration stress applied to correlation factors by half due to the diversity of tenants, property types, and geographic locations inherent in the collateral pools. Moody's modeled a MAC of 100.0% compared to 15.2% at last review. The high MAC is due to the increase of very-high risk collateral concentrated within a small number of collateral names. The principal methodologies used in rating RFC CDO 2007-1, Ltd., were "CMBS: Moody's Approach to Revolving Facilities in CDOs Backed by Commercial Real Estate Interests" published in July 2004, and "Moody's Approach to Rating SF CDOs" published in August 2009. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found on Moody's website. Moody's review incorporated CDOROM v2.6, one of Moody's CDO rating models, which was released on May 27, 2010. The cash flow model, CDOEdge v3.2, was used to analyze the cash flow waterfall and its effect on the capital structure of the deal. When determining default timing in Moody's analysis of cash flow of this transaction, Moody's assumed a delay in the default timing to better reflect its expectation of how the underlying real estate collateral will perform in this commercial real estate downturn. 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. Rated notes are particularly sensitive to changes in recovery rate assumptions. Holding all other key parameters static, changing the recovery rate assumption down from 29.8% to 20.6% or up to 40.9% would result in average rating movement on the rated tranches of 0 to 4 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 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 current stressed macroeconomic environment and continuing weakness in the commercial real estate and lending markets. Moody's currently views the commercial real estate market as stressed with further performance declines expected in a majority of property sectors. The availability of debt capital is improving with terms returning towards market norms. Job growth and housing price stability will be necessary precursors to commercial real estate recovery. Overall, Moody's central global scenario remains "hook- shaped" for 2010 and 2011; Moody's expect overall a sluggish recovery in most of the world's largest economies, returning to trend growth rate with elevated fiscal deficits and persistent unemployment levels. Moody's Investors Service did not receive or take into account a third party due diligence report on the underlying assets or financial instruments related to the monitoring of this transaction in the past six months. ROGER WILLIAMS: S&P Lowers $13MM Reveunue Bonds Ratings to BB- -------------------------------------------------------------- Standard & Poor's Ratings Services lowered its rating to 'BB-' from 'BB' on Rhode Island Health & Educational Building Corp.'s remaining $13.0 million series 1998 revenue bonds, issued for Roger Williams Hospital (renamed Roger Williams Medical Center effective Jan. 4, 2010). The outlook is negative based on Standard & Poor's assessment of the organization's decreasing revenue and volumes through the fiscal 2010 interim period (nine months ended June 30, 2010), uncertain economic factors, as well as the organization's thin and declining liquidity. Roger Williams' financial operating performance improved gradually from fiscal 2006 to fiscal 2009 (excluding one-time expenses); however, management indicates fiscal 2010 year-end results, while expected to be break-even, will vary negatively from fiscal 2009. While management is focused on reducing costs through efficiencies, the organization's declining revenues and volumes are, in Standard & Poor's view, a negative credit consideration. Standard & Poor's believes these factors are magnified by uncertain economic issues, including imminent Medicaid cuts, which are currently unknown, and general recessionary pressures that have likely contributed to the declining volume. In addition, Standard & Poor's believes Roger Williams' liquidity continues to be thin for the rating, with a balance of approximately $13.0 million in unrestricted cash, or just 27 days' coverage of annual operating expenses available to support the organization. In Standard & Poor's opinion, offsetting credit factors include Roger Williams' light level of debt, with a moderate cash-to-debt ratio of 56% through the interim period of fiscal 2010, although down from 71% at the close of fiscal 2009, and a low debt burden ratio of 1.9%. "If Roger Williams' financial operations further decline, or if liquidity were to decrease, we would consider a lower rating," said Standard & Poor's credit analyst Jennifer Soule. "To return to a stable outlook, we believe Roger Williams will need to meet or favorably exceed its budgeted expectations through fiscal 2010 and into fiscal 2011, with no further decline in liquidity," said Ms. Soule. Standard & Poor's would consider a higher rating over the coming years, if Roger Williams achieves a trend of operational and balance sheet improvement on target with management's budgeted expectations, which may take several years for the organization to achieve. Standard & Poor's would view any additional debt negatively; however, management indicates they do not have any additional debt plans at this time. Roger Williams and St. Joseph Health Services (B-/Negative) became part of a holding company named CharterCARE Health Partners on Jan. 4, 2010. Roger Williams Medical Center, which does not provide obstetric or pediatric services, operates a 220-licensed- bed acute-care hospital in Providence, R.I. The medical center is affiliated with a nursing home and a real estate holding corporation. SALOMON BROTHERS: Moody's Downgrades Ratings on Six Certificates ---------------------------------------------------------------- Moody's Investors Service has downgraded the ratings of 6 certificates, backed by reperforming residential mortgage loans, issued by Salomon Brothers Mortgage Securities VII, Inc., Series 1997-HUD1. Issuer: Salomon Brothers Mortgage Securities VII, Inc., Series 1997-HUD1 -- A-4, Downgraded to B1 (sf); previously on April 30, 1997 Assigned Aaa (sf) -- A-WAC, Downgraded to B1 (sf); previously on April 30, 1997 Assigned Aaa (sf) -- IO, Downgraded to B1 (sf); previously on April 30, 1997 Assigned Aaa (sf) -- B-1, Downgraded to Caa3 (sf); previously on Jan. 22, 2004 Upgraded to Aaa (sf) -- B-2, Downgraded to Ca (sf); previously on Jan. 22, 2004 Upgraded to Aaa (sf) -- B-3, Downgraded to C (sf); previously on June 18, 2010 Downgraded to Caa1 (sf) and Placed Under Review for Possible Downgrade Ratings Rationale The rating actions are a result of the deterioration in the performance of the underlying mortgage pool backing the transaction. The collateral backing this transaction consists of fully amortizing loans originated under one of the insurance programs of the U.S. Department of Housing and Urban Development (HUD). Following default, these loans were repurchased by HUD and subsequently sold in a series of public auctions. Moody's estimated loss on the underlying mortgage pool by multiplying lifetime pipeline loss expected from the related pool by a factor of 1.75. The lifetime pipeline loss was derived based on lifetime roll rates to default of 85% for 60-day delinquencies, 95% for 90+ day delinquencies, 100% for loans in foreclosure, and 100% for loans where the homes are held-for-sale, each applied with a severity assumption of 90%. To assess the rating implications of the updated loss level on rated certificates, Moody's analyzed each certificate's loss coverage ratio based on subordination compared to updated pool loss. The certificates that do not have enough loss coverage ratio to maintain current ratings based on the new loss level have been downgraded. The primary source of assumption uncertainty is the current macroeconomic environment, in which unemployment remains at high levels, and weakness persists in the housing market. Moody's notes an increasing potential for a double-dip recession, which could cause a further 20% decline in home prices (versus its baseline assumption of roughly 5% further decline). Overall, Moody's assumes a further 5% decline in home prices with stabilization in early 2011, accompanied by continued stress in national employment levels through that timeframe. If the expected loss on the collateral pool were to increase by 10%, the ratings of classes A-4, A-WAC, and IO will change from B1 to B2, the rating of class B-1 will change from Caa3 to Ca, and the ratings of classes B-2 and B-3 will remain unchanged. Moody's Investors Service did not receive or take into account a third party due diligence report on the underlying assets or financial instruments related to the monitoring of this transaction in the past 6 months. SECURTIZED ASSET: Moody's Puts Junk Class M-1 Cert. On Review ------------------------------------------------------------- Moody's Investors Service has downgraded the rating of one tranche, confirmed the rating of one tranche, and upgraded the rating of one tranche from Securitized Asset Backed Receivables LLC Trust 2006-FR1. The collateral backing this deal primarily consists of first-lien, fixed and adjustable-rate subprime residential mortgages. Issuer: Securitized Asset Backed Receivables LLC Trust 2006-FR1 * Cl. A-1, Upgraded to Aa1 (sf); previously on Jan. 13, 2010 A1 (sf) Placed Under Review for Possible Downgrade * Cl. A-2C, Confirmed at A3 (sf); previously on Jan. 13, 2010 A3 (sf) Placed Under Review for Possible Downgrade * Cl. M-1, Downgraded to Caa3 (sf); previously on Jan. 13, 2010 Caa1 (sf) Placed Under Review for Possible Downgrade The actions reflect the continued performance deterioration in Subprime pools in conjunction with home price and unemployment conditions that remain under duress. The actions reflect Moody's updated loss expectations on subprime pools issued from 2005 to 2007. Classes A-1 and A-2C were upgraded and confirmed, respectively, primary due to strong credit enhancement relative to expected pool losses. To assess the rating implications of the updated loss levels on subprime RMBS, each individual pool was run through a variety of scenarios in the Structured Finance Workstation, the cash flow model developed by Moody's Wall Street Analytics. This individual pool level analysis incorporates performance variances across the different pools and the structural features of the transaction including priorities of payment distribution among the different tranches, average life of the tranches, current balances of the tranches and future cash flows under expected and stressed scenarios. The scenarios include ninety-six different combinations comprising of six loss levels, four loss timing curves and four prepayment curves. The volatility in losses experienced by a tranche due to small increments in losses on the underlying mortgage pool is taken into consideration when assigning ratings. The principal methodology used in rating these securities was "Subprime RMBS Loss Projection Update: February 2010", rating methodology published in February 2010. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found on Moody's website. The primary source of assumption uncertainty is the current macroeconomic environment, in which unemployment remains at high levels, and weakness persists in the housing market. Moody's notes an increasing potential for a double-dip recession, which could cause a further 20% decline in home prices. Overall, Moody's assumes a further 5% decline in home prices with stabilization in early 2011, accompanied by continued stress in national employment levels through that timeframe. If expected losses on the collateral pool were to increase by about 7.5%, model implied results indicate that most of the deal's ratings would remain stable, with the exception of Classes M-1, for which the model indicated result would be Ca. ST. JOSEPH HEALTH: S&P Downgrades Rating on $18.7MM Bonds to 'B' ---------------------------------------------------------------- Standard & Poor's Ratings Services lowered its rating to 'B-' from 'BB-' on Rhode Island Health and Educational Building Corp.'s $18.7 million series 1999 bonds issued for St. Joseph Health Services. The lower rating reflects Standard & Poor's belief that St. Joseph's volatile operating performance and declining financial profile is more indicative of a 'B-' credit rating. Through the first nine months of fiscal 2010 (interim period ended June 30, 2010), St. Joseph realized an operating loss that significantly varied from management's budgeted expectations, which it attributed to declining utilization in both its inpatient and outpatient lines of service. The 'B-' rating further reflects Standard & Poor's assessment of St. Joseph's limited balance sheet with continued declines in the organization's already minimal liquidity and the competitive Rhode Island service area, which is dominated by 'A' rated Lifespan. "In our opinion, the outlook remains negative due to various financial uncertainties, including the success or failure of the organization's recovery plans, future revenue and volume-growth potential, and pending information on the magnitude of imminent Medicaid cuts," said Standard & Poor's credit analyst Jennifer Soule. "In addition, it is our understanding St. Joseph will violate its debt service coverage bond covenant based on fiscal 2010 financial results," said Ms. Soule. Standard & Poor's considers the organization's liquidity weak for the current rating. Over the next one to two years, it is our expectation St. Joseph will achieve management's identified cost savings and work toward profitable operations and positive cash flows. If this holds true, Standard & Poor's could consider returning the outlook to stable. It is also our expectation that volumes and revenues will stabilize over that period as well. However, if St. Joseph's financial profile were to deteriorate further, Standard & Poor's would consider a lower rating. St. Joseph Health Services operates 249-staffed beds on one campus at Our Lady of Fatima Hospital in North Providence and 94 beds at St. Joseph Hospital for Specialty Care in Providence. T2 INCOME: Improved Credit Quality Cues Moody's Rating Upgrade -------------------------------------------------------------- Moody's Investors Service has upgraded the ratings of the following notes issued by T2 Income Fund CLO I Ltd.: * U.S. $22,000,000 Class C Third Priority Subordinated Deferrable Notes Due 2019, Upgraded to Baa1 (sf); previously on July 30, 2009 Upgraded to Baa3 (sf); * U.S. $9,000,000 Class D Fourth Priority Subordinated Deferrable Notes Due 2019, Upgraded to Ba1 (sf); previously on July 30, 2009 Upgraded to Ba3 (sf); * U.S. $12,000,000 Class E Fifth Priority Subordinated Deferrable Notes Due 2019, Upgraded to Ba3 (sf); previously on July 30, 2009 Upgraded to B3 (sf). According to Moody's, the rating actions taken on the notes result primarily from improvement in the credit quality of the underlying portfolio since the last rating action in July 2009. Based on the August 2010 trustee report, the weighted average rating factor is 2995 compared to 3691 in July 2009, and securities rated Caa1 and below make up approximately 13.39% of the underlying portfolio versus 20.37% in July 2009. The deal also experienced a decrease in defaults. In particular, the dollar amount of defaulted securities has decreased to about $5 million from approximately $8 million in July 2009. In Moody's view, these positive developments coincide with reinvestment of principal proceeds into substitute assets with higher ratings. The overcollateralization ratios of the rated notes have also increased since the last rating action. The Class A/B, Class C, Class D and Class E overcollateralization ratios are reported at 143.12%, 129.30%, 124.39% and 118.39%, respectively, versus July 2009 levels of 142.08%, 128.36%, 123.49% and 117.53%, respectively, and all related overcollateralization tests are currently in compliance. Due to the impact of revised and updated key assumptions referenced in "Moody's Approach to Rating Collateralized Loan Obligations" and "Annual Sector Review (2009): Global CLOs," key model inputs used by Moody's in its analysis, such as par, weighted average rating factor, diversity score, and weighted average recovery rate, may be different from the trustee's reported numbers. In its base case, Moody's analyzed the underlying collateral pool to have a performing par and principal proceeds of $289.87 million, defaulted par of $7.58 million, weighted average default probability of 30.15%, a weighted average recovery rate upon default of 43.50%, and a diversity score of 25. These default and recovery properties of the collateral pool are incorporated in cash flow model analysis where they are subject to stresses as a function of the target rating of each CLO liability being reviewed. The default probability is derived from the credit quality of the collateral pool and Moody's expectation of the remaining life of the collateral pool. The average recovery rate to be realized on future defaults is based primarily on the seniority of the assets in the collateral pool. In each case, historical and market performance trends, and collateral manager latitude for trading the collateral are also factors. T2 Income Fund CLO I Ltd., issued in July 2007, is a collateralized loan obligation backed primarily by a portfolio of senior secured loans. The principal methodology used in rating T2 Income Fund CLO I, Ltd., was "Moody's Approach to Rating Collateralized Loan Obligations" rating methodology published in August 2009. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found on Moody's website. Moody's Investors Service did not receive or take into account a third party due diligence report on the underlying assets or financial instruments related to the monitoring of this transaction in the past 6 months. Moody's modeled the transaction using the Binomial Expansion Technique, as described in Section 2.3.2.1 of the "Moody's Approach to Rating Collateralized Loan Obligations" rating methodology published in August 2009. In addition to the base case analysis described above, Moody's also performed a number of sensitivity analyses to test the impact on all rated notes, including the following: 1. Various default probabilities to capture potential defaults in the underlying portfolio. 2. A range of recovery rate assumptions for all assets to capture variability in recovery rates. Below is a summary of the impact of different default probabilities on all rated notes, assuming that all other factors are held equal: Moody's Adjusted WARF -- 20% (3238) * Class A: 0 * Class B: +2 * Class C: +2 * Class D: +2 * Class E: +1 Moody's Adjusted WARF + 20% (4856) * Class A: -1 * Class B: -2 * Class C: -2 * Class D: -2 * Class E: -1 Below is a summary of the impact of different recovery rate levels on all rated notes, assuming that all other factors are held equal: Moody's Adjusted WARR + 2% (45.50%) * Class A: 0 * Class B: 0 * Class C: 0 * Class D: 0 * Class E: 0 Moody's Adjusted WARR - 2% (41.50%) * Class A: 0 * Class B: 0 * Class C: -1 * Class D: -1 * Class E: -1 Moody's notes that this transaction is subject to a high level of macroeconomic uncertainty, as evidenced by: 1. uncertainties of credit conditions in the general economy and 2. the large concentration of speculative-grade debt maturing between 2012 and 2014 which may create challenges for issuers to refinance. CDO notes' performance may also be impacted by: 1. the managers' investment strategies and behavior and 2. divergence in legal interpretation of CDO documentation by different transactional parties due to embedded ambiguities. TIERS CORPORATE: S&P Assigns 'BB+' Ratings on Bond-Backed Certs. ---------------------------------------------------------------- Standard & Poor's Ratings Services placed its 'BB+ (sf)' ratings on TIERS Corporate Bond-Backed Certificates Trust MOT 1998-5's $117.866 million class Amort and ZTF certificates on CreditWatch with positive implications. S&P's ratings on the class Amort and ZTF certificates are dependent on its rating on the underlying security, Motorola Inc.'s 5.22% notes due Oct. 1, 2097 ('BB+/Watch Pos'). The CreditWatch placements follow S&P's Sept. 2, 2010, placement of its 'BB+' rating on the underlying security on CreditWatch with positive implications. S& may take subsequent rating actions on the class Amort and ZTF certificates due to changes in its ratings assigned to the underlying security. TRAPEZA CDO: Moody's Corrects Ratings Assigned on Class A-2 Notes ------------------------------------------------------------------ Moody's adjusts the rating of US$53,000,000 Class A-2 Second Priority Senior Secured Floating Rate Notes Due 2041 to Caa2 (sf). Revised release: Moody's Investors Service announced that it has downgraded notes issued by Trapeza CDO XI, Ltd.: -- US$281,000,000 Class A-1 First Priority Senior Secured Floating Rate Notes Due 2041 (current balance of $264,558,690), Downgraded to B1 (sf); previously on March 27, 2009 Downgraded to Ba3 (sf); -- US$53,000,000 Class A-2 Second Priority Senior Secured Floating Rate Notes Due 2041 (current balance of $53,000,000), Downgraded to Caa2 (sf); previously on March 27, 2009 Downgraded to Caa1 (sf); -- US$25,000,000 Class B Fourth Priority Secured Deferrable Floating Rate Notes Due 2041 (current balance of $25,431,713), Downgraded to C (sf); previously on March 27, 2009 Downgraded to Ca (sf). Ratings Rationale Trapeza CDO XI, Ltd., issued in November 8, 2006, is a collateral debt obligation backed by a managed portfolio of bank, insurance, and REIT trust preferred securities. On March 27, 2009, Moody's downgraded 5 classes of notes as a result of the application of revised and updated key modeling assumptions, as well as the deterioration in the credit quality of the transaction's underlying portfolio. Moody's indicated that the rating actions on the notes are primarily the result from the increase in the assumed defaulted amount, as evidenced by $37.37 million additional defaults of the trust preferred securities held in the portfolio since the last rating action and an increase in the WARF from 2310 (March 27, 2009) to 2896 (September 9, 2010). The par loss due to the increase in the assumed defaulted amount has resulted in loss of overcollateralization for the tranches affected and an increase of their expected losses since the last rating action. In addition, the overcollateralization tests continue to breach their triggers which has resulted in a diversion of excess spreads to pay down senior notes. As of the latest trustee report dated July 31, 2010, the Class A, Class B, Class C, Class D, Class E, and Class F overcollateralization ratios are reported at 109.65%, 101.95%, 93.22%, 85.63%, 81.87%, 77.70%, respectively, versus March 27, 2009 levels of 129.41%, 120.72%, 110.90%, 102.34%, 98.19%, 94.00%, respectively. The credit deterioration exhibited by these portfolios is a reflection of the continued pressure in the banking sector as the number of bank failures and interest deferrals of trust preferred securities issued by banks has continued to increase. According to FDIC data, 118 U.S. banks have failed to date this year, while 140 banks failed in 2009, as compared to 25 in all of 2008. In Moody's opinion, the banking sector outlook continues to remain negative while insurance and REIT are stabilizing with the exception to commercial P&C insurance and healthcare and lodging REITs which remain negative. Moody's also gave consideration to the Event of Default analysis for Trapeza CDO XI, Ltd. Although Trapeza CDO XI, Ltd. has not declared an Event of Default to date, Moody's notes the current Class A Overcollateralization level is 109.65%. The transaction would declare an Event of Default if this level falls below 100%. Since this transaction is close to triggering an Event of Default, additional modeling scenarios were considered in this case assuming that acceleration has been declared. Cumulative assumed defaults now total $169.62 million, 34.10% of the portfolio, $37.37 million of which have occurred since the previous rating action. All the assumed defaulted assets are carried at zero recovery in Moody's analysis. The remaining assets in the portfolio have also suffered credit deterioration, with now 41.58% of the portfolio estimated to be Baa2 or below, as determined using FDIC Q1-2010 financial data in conjunction with Moody's RiskCalc model to assess non-publicly rated bank trust preferred securities. Similarly, 14.72% of the remaining assets in the portfolio are estimated to be Baa3 or below by Moody's Insurance team using insurance companies reported financial data. Finally, 18.22% of the remaining performing assets in the portfolio are REIT TRUPs with an estimated rating of Ba2 or below by Moody's REIT team using REIT companies reported financial data. Given the current market conditions, Moody's have assumed in Moody's cash-flow modeling analysis that there are no amortizations and thus, the WAL of the portfolio is around 26. Moody's cash-flow modeling analysis are described in Moody's Rating Methodology publication titled "Moody's Approach To Rating U.S. Bank Trust Preferred Security CDOs", June 2010, under Appendix A (page 8). The portfolios of these CDOs are mainly composed of trust preferred securities issued by small to medium sized U.S. community bank, insurance companies and REITs that are generally not publicly rated by Moody's. To evaluate their credit quality, Moody's derives credit scores for these non-publicly rated assets and evaluates the sensitivity of the rated transactions to their volatility, as described in Moody's Rating Methodology "Updated Approach to the Usage of Credit Estimates in rated Transactions", October 2009. The effect of the stress testing of these credit scores may vary between 1 and 3 notches, depending on the total amount and relative size of these securities in the collateral pool. Moody's evaluation of this transaction relies on financial data received for a majority of obligors in the pool as of Q1-2010. This financial data is used by Moody's to assess the credit quality of obligors in the pool, relying on RiskCalc, an econometric model developed by Moody's KMV. The results obtained from the RiskCalc model have been translated to Moody's rating scale and adjusted by one notch where necessary in order to compensate for the absence of credit indicators such as rating reviews, outlooks and adjustments factoring in cyclical developments in the economy. Moody's also incorporated information provided by the manager in the latest investor report to account for more recent information on the performance of the underlying obligors. Moody's performed a number of sensitivity analyses of the results to some of the key factors driving the ratings. Among those key factors, consideration was made of further increase and decrease in the assumed defaulted assets in the model results. The effect of increasing the assumed defaulted amount by $33 million equated to an expected loss that is two notches below the one modeled under the base case with the current assumed defaulted amount at $170 million. Conversely, decreasing the assumed defaulted amount by $33 million resulted to an expected loss that is three notches above the one modeled under the base case. In addition, the sensitivity of the model results to increases and decreases to the WARF (representing a slight improvement and a slight deterioration of the credit quality of the collateral pool) was examined resulting in an expected loss that is one notch below the one modeled under the base case for Class A-1 when the WARF is increased by 304 points from the base case of 2896. Not so similarly, the WARF needed to drop by 196 points from the base case in order to yield an expected loss that is one notch above the one modeled under the base case. Additional sources of uncertainty to the evaluation assumptions result from continued negative outlook of the underlying collateral portfolio sectors, especially in the banking industry where Moody's anticipate more banks closure by FDIC in 2010 compared to previous years. In addition, to the quantitative factors that are explicitly modeled, qualitative factors are part of rating committee considerations. These qualitative factors include, among other elements, an assessment of the collateral manager track record and practices. In particular, Moody's looked at the quality of information provided by the manager, its interpretation of the documentation and level of diligence in the implementation of the transaction criteria. Moody's considers as well the structural protections in each transaction, the recent deal performance in the current market environment, the legal environment, and specific documentation features. All information available to rating committees, including macroeconomic forecasts, input from other Moody's analytical groups, market factors, and judgments regarding the nature and severity of credit stress on the transactions, may influence the final rating decision. Moody's Investors Service did not receive or take into account a third party due diligence report on the underlying assets or financial instruments related to the monitoring of this transaction in the past 6 months. Due to the impact of revised and updated key assumptions referenced in these rating methodologies, key model inputs used by Moody's in its analysis, such as par, weighted average rating factor, Moody's Asset Correlation, and weighted average recovery rate, may be different from the trustee's reported numbers. In particular, rating assumptions for all publicly rated corporate credits in the underlying portfolio have been adjusted for "Review for Possible Downgrade", "Review for Possible Upgrade", or "Negative Outlook". The transaction's portfolio was modeled, according to Moody's rating approach, using CDOROMTM v.2.6 to develop the loss distribution from which the Moody's Asset Correlation parameter was obtained. This parameter was then used as an input in a cash flow model using CDOEdge. CDOROMTM v.2.6 is available on moodys.com under Products and Solutions -- Analytical models, upon return of a signed free license agreement. TRAPEZA CDO: Moody's Downgrades Ratings on Fives Classes of Notes ----------------------------------------------------------------- Moody's Investors Service announced that it has downgraded notes issued by Trapeza CDO X, Ltd. The notes affected by the rating action are: -- US$268,000,000 Class A-1 (current balance of $249,663,961.59), Downgraded to B1 (sf); previously on March 27, 2009 Downgraded to Ba3 (sf); -- US$69,000,000 Class A-2 (current balance of $69,000,000), Downgraded to Caa3 (sf); previously on March 27, 2009 Downgraded to B3 (sf); -- US$31,000,000 Class B (current balance of $31,218,375.37), Downgraded to C (sf); previously on March 27, 2009 Downgraded to Ca (sf); -- US$21,000,000 Class C-1 (current balance of $22,186,534.54), Downgraded to C (sf); previously on March 27, 2009 Downgraded to Ca (sf); -- US$35,000,000 Class C-2 (current balance of $40,014,170.66), Downgraded to C (sf); previously on March 27, 2009 Downgraded to Ca (sf). Ratings Rationale Trapeza CDO X, Ltd. is a collateral debt obligation backed by a portfolio of Bank, Insurance and REIT trust preferred securities and it was issued in June, 15, 2006. According to Moody's, the rating downgrade action on the notes is the result of a significant increase in the defaults and deferrals on the trust preferred securities held in the portfolio and the deterioration of the overall credit quality of the remaining portfolio. Such negative performance has been observed through numerous factors, including a decline in the average credit rating of the portfolio (as measured by an increase in the weighted average rating factor) and an increase in the assumed amount of defaults. Since the last rating action on March 27, 2009, the Weighted Average Rating Factor has increased by 122 from 2133 (March 27, 2009) to 2255 (September 3, 2010). Additionally, there were approximately $53.62 million of additional assumed defaults in this transaction. The par loss due to the increase in the assumed defaulted amount has resulted in loss of overcollateralization for the rated tranches. In addition, the overcollateralization tests continue to breach their triggers, resulting in a diversion of excess spreads to pay down senior notes. As of the latest trustee report dated July 31, 2010, the Class A, Class B, Class C and Class D overcollateralization ratios were reported at 115.432%, 105.132%, 89.263% and 79.322%, respectively, versus previous levels of 134.85%, 123.16%, 106.06% and 95.27%, respectively at the time of last rating actions. The credit deterioration in these portfolios is a reflection of the continued distress in some part of the banking sector as the number of bank failures and interest deferrals of trust preferred securities issued by regional and community banks continued to increase. According to FDIC data, 118 U.S. banks have failed so far this year, while 140 banks failed in 2009, as compared to 25 in all of 2008. In Moody's opinion, the banking sector outlook continues to remain negative while insurance and REIT are stabilizing with the exception to commercial P&C insurance and healthcare and lodging REITs which remain negative. Moody's notes that the cumulative assumed defaults in this transaction now total $184.17 million or 37.66% of the portfolio, $53.62 million of which have occurred since the previous rating action. All the assumed defaulted assets are carried at zero recovery in Moody's analysis. The remaining performing assets in the portfolio have also suffered credit deterioration. 76% of the portfolio are bank TruPS with an estimated rating of Ba1 (sf) or below, as determined using FDIC Q1-2010 financial data in conjunction with Moody's RiskCalc model. 0.70% of the remaining portfolio are insurance TruPS with an estimated rating of Ba2 (sf) or below by Moody's Insurance team using insurance companies reported financial data. Finally, 23.3% of the remaining performing assets in the portfolio are REIT TruPS with an estimated rating of B3 (sf) or below by Moody's REIT team using REIT companies reported financial data. Given the current market conditions, Moody's have assumed in Moody's cash-flow modeling analysis that there are no amortizations and the WAL of the portfolio is around 26 years. Moody's cash-flow modeling analysis are described in Moody's Rating Methodology publication titled "Moody's Approach To Rating U.S. Bank Trust Preferred Security CDOs", June 2010, under Appendix A (page 8). The portfolios of these CDOs are mainly composed of trust preferred securities issued by small to medium sized U.S. community bank, insurance companies and REITs that are generally not publicly rated by Moody's. To evaluate their credit quality, Moody's derives credit scores for these non-publicly rated assets and evaluates the sensitivity of the rated transactions to their volatility, as described in Moody's Rating Methodology "Updated Approach to the Usage of Credit Estimates in rated Transactions", October 2009. The effect of the stress testing of these credit scores may vary between 1 and 3 notches, depending on the total amount and relative size of these securities in the collateral pool. Moody's evaluation of this transaction relies on financial data received for a majority of bank obligors in the pool as of Q1_2010. This financial data is used by Moody's to assess the credit quality of obligors in the pool, using RiskCalc, an econometric model developed by Moody's KMV. The results obtained from the RiskCalc model have been translated to Moody's rating scale and adjusted by one notch where necessary in order to compensate for the absence of credit indicators such as rating reviews, outlooks and adjustments factoring in cyclical developments in the economy. Moody's also incorporated information provided by the manager in the latest investor report to account for more recent information on the performance of the underlying obligors. Moody's performed a number of sensitivity analyses on some of the key factors driving the ratings. The sensitivity analysis includes further increase and decrease to the WARF (representing a slight improvement and a slight deterioration of the credit quality of the collateral pool) and the results indicate a one- notch downward movement on Class A1 when WARF was increased by 445 and a one-notch upward movement when the WARF was decreased by 255. In addition, a decrease of 1% in the WAC or 0.5% in the WAS of the collateral pool resulted in one notch downward movement on the Class A1 notes. In addition, to the quantitative factors that are explicitly modeled, qualitative factors are part of rating committee considerations. These qualitative factors include, among other elements, an assessment of the collateral manager track record and practices. In particular, Moody's looked at the quality of information provided by the manager, its interpretation of the documentation and level of diligence in the implementation of the transaction criteria. Moody's considers as well the structural protections in each transaction, the recent deal performance in the current market environment, the legal environment, and specific documentation features. All information available to rating committees, including macroeconomic forecasts, input from other Moody's analytical groups, market factors, and judgments regarding the nature and severity of credit stress on the transactions, may influence the final rating decision. Moody's Investors Service did not receive or take into account a third party due diligence report on the underlying assets or financial instruments related to the monitoring of this transaction in the past 6 months. Due to the impact of revised and updated key assumptions referenced in these rating methodologies, key model inputs used by Moody's in its analysis, such as par, weighted average rating factor, Moody's asset correlation, and weighted average recovery rate, may be different from the trustee's reported numbers. In particular, rating assumptions for all publicly rated corporate credits in the underlying portfolio have been adjusted for "Review for Possible Downgrade", "Review for Possible Upgrade", or "Negative Outlook". The transaction's portfolio was modeled using CDOROM v.2.6, according to Moody's rating approach, to develop the loss distribution from which the Moody's Asset Correlation parameter was obtained. This parameter was then used as an input in a cash flow model using CDOEdge. CDOROM v.2.6 is available on moodys.com under Products and Solutions -- Analytical models, upon return of a signed free license agreement. TRAPEZA EDGE: Moody's Downgrades Ratings on Two Classes of Notes ---------------------------------------------------------------- Moody's Investors Service announced that it has downgraded notes issued by Trapeza Edge CDO, Ltd.: -- US$194,000,000 Class A-1 First Priority Senior Secured Floating Rate Notes Due 2035 (current balance of $185,089,698), Downgraded to Baa2 (sf); previously on March 27, 2009 Downgraded to A3 (sf); -- US$26,000,000 Class A-2 Second Priority Senior Secured Floating Rate Notes Due 2035 (current balance of $26,000,000), Downgraded to Ba2 (sf); previously on March 27, 2009 Downgraded to Ba1 (sf). Ratings Rationale Trapeza Edge CDO, Ltd., issued in August 11, 2005, is a collateral debt obligation backed by a managed portfolio of bank and insurance trust preferred securities. On March 27, 2009, Moody's downgraded 5 classes of notes as a result of the application of revised and updated key modelling assumptions, as well as the deterioration in the credit quality of the transaction's underlying portfolio. Moody's indicated that the rating actions on the notes are primarily the result from the increase in the assumed defaulted amount since the last rating action, as evidenced by $30.10 million additional defaults of the trust preferred securities held in the portfolio, and an increase in the WARF from 1526 (March 27, 2009) to 1690 (September 9, 2010). The par loss due to the increase in the assumed defaulted amount has resulted in loss of overcollateralization for the tranches affected and an increase of their expected losses since the last rating action. In addition, the overcollateralization tests continue to breach their triggers which has resulted in a diversion of excess spreads to pay down senior notes. As of the latest trustee report dated August 10, 2010, the Class A and Class B overcollateralization ratios are reported at 123.91% and 95.34%, respectively, versus March 27, 2009 levels of 133.86% and 103.60%, respectively. The credit deterioration exhibited by these portfolios is a reflection of the continued pressure in the banking sector as the number of bank failures and interest deferrals of trust preferred securities issued by banks has continued to increase. According to FDIC data, 118 U.S. banks have failed to date this year, while 140 banks failed in 2009, as compared to 25 in all of 2008. In Moody's opinion, the banking sector outlook continues to remain negative while insurance and REIT are stabilizing with the exception to commercial P&C insurance and healthcare and lodging REITs, which remain negative. Cumulative assumed defaults now total $56.82 million, 16% of the portfolio, $30.1 million of which have occurred since the previous rating action. All the assumed defaulted assets are carried at zero recovery in Moody's analysis. The remaining assets in the portfolio have also suffered credit deterioration, with now 52.09% of the portfolio estimated to be Baa2 or below, as determined using FDIC Q1-2010 financial data in conjunction with Moody's RiskCalc model to assess non-publicly rated bank trust preferred securities. Similarly, 36.30% of the remaining non-publicly rated assets in the portfolio are estimated to be Baa3 or below by Moody's Insurance team using insurance companies reported financial data. Given the current market conditions, Moody's have assumed in Moody's cash-flow modeling analysis that there are no amortizations and thus, the WAL of the portfolio is around 25. Moody's cash-flow modeling analysis are described in Moody's Rating Methodology publication titled "Moody's Approach To Rating U.S. Bank Trust Preferred Security CDOs", June 2010, under Appendix A (page 8). The portfolios of these CDOs are mainly composed of trust preferred securities issued by small to medium sized U.S. community bank, insurance companies and REITs that are generally not publicly rated by Moody's. To evaluate their credit quality, Moody's derives credit scores for these non-publicly rated assets and evaluates the sensitivity of the rated transactions to their volatility, as described in Moody's Rating Methodology "Updated Approach to the Usage of Credit Estimates in rated Transactions", October 2009. The effect of the stress testing of these credit scores may vary between 1 and 3 notches, depending on the total amount and relative size of these securities in the collateral pool. Moody's evaluation of this transaction relies on financial data received for a majority of obligors in the pool as of Q1-2010. This financial data is used by Moody's to assess the credit quality of obligors in the pool, relying on RiskCalc, an econometric model developed by Moody's KMV. The results obtained from the RiskCalc model have been translated to Moody's rating scale and adjusted by one notch where necessary in order to compensate for the absence of credit indicators such as rating reviews, outlooks and adjustments factoring in cyclical developments in the economy. Moody's also incorporated information provided by the manager in the latest investor report to account for more recent information on the performance of the underlying obligors. Moody's performed a number of sensitivity analyses of the results to some of the key factors driving the ratings. The sensitivity of the model results to increases and decreases to the WARF (representing a slight improvement and a slight deterioration of the credit quality of the collateral pool) was examined resulting in an expected loss that is one notch below the one modeled under the base case for Class A-1 when the WARF is increased by 160 points from the base case of 1690. Not so similarly, the WARF needed to drop by 290 points from the base case in order to yield an expected loss that is one notch above the one modeled under the base case. Additionally, the effects of higher and lower spread and coupon rates of the collateral pool resulted in these: Increasing the spread to an average spread of 2.3% and coupon rate to an average coupon rate of 7.2% yielded an expected loss that is one notch below the one modeled under the base case. Conversely, decreasing the spread and coupon by the same magnitude from the base case to 1.5% and 5.5%, respectively, resulted in an expected loss that is one notch above the one modeled under the base case for Class A-1. Additional sources of uncertainty to the evaluation assumptions result from continued negative outlook of the underlying collateral portfolio sectors, especially in the banking industry where Moody's anticipate more banks closure by FDIC in 2010 compared to previous years. In addition to the quantitative factors that are explicitly modeled, qualitative factors are part of rating committee considerations. These qualitative factors include, among other elements, an assessment of the collateral manager track record and practices. In particular, Moody's looked at the quality of information provided by the manager, its interpretation of the documentation and level of diligence in the implementation of the transaction criteria. Moody's considers as well the structural protections in each transaction, the recent deal performance in the current market environment, the legal environment, and specific documentation features. All information available to rating committees, including macroeconomic forecasts, input from other Moody's analytical groups, market factors, and judgments regarding the nature and severity of credit stress on the transactions, may influence the final rating decision. Moody's Investors Service did not receive or take into account a third party due diligence report on the underlying assets or financial instruments related to the monitoring of this transaction in the past 6 months. Due to the impact of revised and updated key assumptions referenced in these rating methodologies, key model inputs used by Moody's in its analysis, such as par, weighted average rating factor, Moody's Asset Correlation, and weighted average recovery rate, may be different from the trustee's reported numbers. In particular, rating assumptions for all publicly rated corporate credits in the underlying portfolio have been adjusted for "Review for Possible Downgrade", "Review for Possible Upgrade", or "Negative Outlook". The transaction's portfolio was modeled, according to Moody's rating approach, using CDOROMTM v.2.6 to develop the loss distribution from which the Moody's Asset Correlation parameter was obtained. This parameter was then used as an input in a cash flow model using CDOEdge. CDOROMTM v.2.6 is available on moodys.com under Products and Solutions -- Analytical models, upon return of a signed free license agreement. * Moody's Downgrades Rating on City of Salem's Bonds to 'Ba2' ------------------------------------------------------------- Moody's Investors Service has downgraded to Ba2 from Baa3 the rating and assigned a negative outlook to $772,000 of City of Salem (NJ) General Obligation Bonds and $19.5 million of Revenue Bonds (Finlaw State Office Building Project), Series 2007, issued through the Salem County Improvement Authority. Ratings Rationale The downgrade reflects continued pressures put on the city by the responsibility for the Finlaw State Office Building Project, on which the city has guaranteed debt service payments. The project's debt service reserve fund has been needed to pay two additional debt service payments after Moody's downgraded the city's general obligation rating to Ba1 from Baa3 in August 2009 following two draws on the reserve in 2009. Given that the city is obligated to pay debt service on the bonds once the debt service fund is exhausted, the additional draws on the reserve fund and lack of plans to replenish utilized amounts further increase the likelihood that the city's guarantee will be called upon. Moody's believes, given the city's already narrow financial position, strained liquidity position and limited tax base, that if this as yet contingent liability were to become a full or partial liability, the city's finances would be stressed to meet this additional burden. Additionally, the city's currently average debt burden would grow to very high levels. Finlaw Project Underperforms Projections; Use Of Debt Service Reserve Increases Likelihood of Use Of City Guarantee In 2007 the city guaranteed bonds, issued by the Salem County Improvement Authority, to finance a downtown office building. The bonds, while ultimately secured by the city's general obligation tax pledge, were expected to be supported by revenues generated by leasing the office space. Construction delays of the facility resulted in delayed lease payments and as such, the last four debt service payments have been paid, in part, with funds in the Debt Service Reserve Fund. The Debt Service Reserve Fund was originally sized at $1.8 million and following the four draws ($488,000 in February 2009, $127,000 in August 2009, $55,000 in February 2010, and $159,000 in August 2010), the fund has been reduced to $1.02 million. The anchor tenant of the office building (leasing 84% of office space) is the State of New Jersey (GO rated Aa2/stable outlook). Additional leases are with the Salem County Improvement Authority and a State Senator. Moody's views the lease revenue stream supporting the bonds as somewhat speculative, given tenants' ability to terminate the leases under certain circumstances, which are unrelated to credit events. An important risk in the structure, as Moody's identified when Moody's first assigned a rating to the bonds, is the fact that the state lease is for 20 years and the bonds amortize over 30 years, leaving funding uncertainties in the out years. Additionally, the revenue associated with signed leases, $1.1 million, is insufficient to cover both debt service ($1.06 million annually over the next four years) and maintenance on the building, estimated at $145,000. The risks to the revenue stream associated with the 20-year term of the state lease ,which accounts for the majority of revenue ($914,000 or 82% of the total revenue identified), a possible termination of the leases and recent draws on reserves increase the likelihood that the city would have to make debt service payments. Given the size of the debt, as compared to the city's resources, as reflected in the limited taxbase, narrow financial position and already strained liquidity, the need of city to step up to provide debt service would have a material impact on the city's financial position (outlined below). City Guarantee Is Called On After The Debt Service Reserve Is Liquidated The city guarantee calls for the Debt Service Reserve, initially funded at 125% of average annual debt service, or $1.8 million, to be used first for any deficiency. Then once the Debt Service Reserve Fund has been exhausted, the city is obligated to pay debt service for the life of the bonds as there is no replenishment mechanism for the Debt Service Reserve. Under the terms of the Guaranty Agreement between the city, the SCIA and Fulton Financial Advisors, N.A. (the trustee for the transaction) if the SCIA has not deposited with the trustee sufficient funds to pay debt service 20 days into the month preceding the month in which debt service is due (February and August 15), the trustee will immediately inform the city of the deficiency. The city is then obligated to remit to the trustee an amount equal to the deficiency one business day before debt service is due. The city is obligated to take any action required for timely payment of debt service, including adoption of an emergency appropriation. City's Financial Position Is Narrow; Cash Flow Borrowing For Operations The city has a narrow financial position and limited liquidity. At the end of fiscal 2008, on an unaudited basis, the Current Fund balance equaled $823,000 or 11% of revenues, a level reserves have approximated over the last five years. Management reports that fiscal 2009 estimated results remained flat over the previous year. Included on the 2008 balance sheet are $150,000 of deferred charges, booked to amortize the cost of a revaluation Net of this non-cash asset, Current Fund balance is just $673,000 or 9% of revenues. Slim reserves have resulted in the need for cash flow borrowing for operations. The unaudited 2008 balance sheet shows $600,000 in Tax Anticipation Notes (issued June 19, 2008; paid in March 2, 2009) for operations as well as a $150,000 Revaluation Note Payable to liquidate the non-cash deferred charges. Additionally, the city defers $1 million of school taxes, which Moody's views as an off-balance sheet liability. The Current Fund balance net of these New Jersey accounting treatment only assets is a negative $359,000. Payment Of Debt Service On SCIA Finlaw Bonds Would Have Material Impact On Financial Position; Limited Liquidity Threatens City's Ability to Make Timely Debt Service Highlighting the sizable liability the city has taken on by guaranteeing the SCIA Finlaw bonds, 2010 debt service ($1.06 million) is more than the city's $823,000 Current Fund balance. Additionally, if the city were to have to absorb the full debt service on the debt, the levy would need to be raised 28.9%. Moody's believes this level of increase would be unmanageable given the city's limited $268 million taxbase, which is has wealth levels well below the state and nation. Median family income of $29,699 and per capita income of $13,559 as reported in the 2000 Census are 45.4% and 50.2% of state medians, respectively. The city and authority currently plan to fully deplete the debt service reserve fund, as outlined in the guaranty agreement, before providing funds to the authority for revenue deficiencies. Given that there is no replenishment mechanism on the debt service reserve, once the reserve has been exhausted, the city will continually be on notice to make debt service payments if revenues associated with the leases are insufficient to pay debt service. If draws on the debt service reserve fund continue at the current rate of $220,000 annually, a likely scenario given the cash flow associated with the leases as compared to debt service and maintenance, the debt service reserve fund will be depleted by February 2015. Assuming no additional revenues from the project at all, the debt service reserve fund would be fully depleted by February of 2011. In both cases, the city would then need to absorb the full debt service payment. Further, Moody's believes the city's slim liquidity position could hinder the city from fulfilling its general obligation pledge on a timely basis. The city's guarantee requires just 22 days notice to cure a deficiency a time frame in which sufficient cash may not be immediately available. The city would have to borrow externally to fund the debt service payment, which would expose the city to market and third party risk. Very High Debt Burden Reflects City's Guarantee Of SCIA Finlaw Debt Moody's believes the city has taken on a liability which is disproportionate to the city's size and ability to pay, which is reflected in the very high debt burden of 13.6% of equalized value. Included in the debt burden is the entire $19.5 million associated with the Finlaw project and a $2.5 million Bond Anticipation Note that the city borrowed in order to complete the project. Debt service was 6.7% of 2008 Current Fund expenditures. If the city were required to make-up a deficiency of $220,000 on the current project, debt service would grow to 9.8% and at $1 million would be 20.6% of the budget. Outlook The negative outlook reflects Moody's belief that revenues associated with the 2007 Finlaw State Building Project debt will continue to be insufficient to meet debt service requirements, requiring additional draws and increasing the likelihood that the city's guaranty will be called upon. Given Salem's weak financial position, the city will likely be challenged to make good on its guaranty in a timely basis. Although discussions began last year with the state to renegotiate lease terms in order to increase revenues to cover building maintenance costs and prevent additional draws, it remains uncertain whether these efforts will prove successful, given state budget pressure and reduced support for local governments. What Could Change the Rating UP (removal of negative outlook): * Rebuilding the debt service reserve to its original size of $1.8 million * Ceasing debt service reserve draws * A signed lease agreement that provides for sufficient revenues to cover debt service What Could Change the Rating Down * A further decline in debt service reserves * A decline in lease revenues Key Statistics: * 2008 Population: 5,661 (-3.3% since 2000) * 2009 Equalized Valuation: $267 million * 2009 Equalized Value Per Capita: $47,266 * 1999 Per Capita Income (as % of NJ and US): $13,559 (50.2% and 62.8%) * 1999 Median Family Income (as % of NY and US): $29,699 (45.4% and 59.3%) * Overall Debt Burden (including SCIA debt): 13.6% * Payout of Principal (10 years; including SCIA debt): 14.6% * 2007 Current Fund Balance: $541,000 (8.54% of Current Fund revenue) * 2008 Current Fund Balance: $823,000 (11% of Current Fund revenue) * 2008 Current Fund Balance, net of deferred charges and school tax deferrals: -$359,000 (-4.8% of Current Fund revenue) * Long-term G.O. Debt Outstanding: $772,000 * G.O. and Guaranteed Debt Outstanding: $19.5 million * S&P Downgrades Ratings on 13 Tranches CDO Transactions -------------------------------------------------------- Standard & Poor's Ratings Services lowered its ratings on 13 tranches from seven U.S. cash flow and hybrid collateralized debt obligation (CDO) transactions and removed them from CreditWatch with negative implications. S&P also affirmed its ratings on 39 other tranches from 10 transactions and removed 11 of them from CreditWatch negative. The CDO downgrades reflect a number of factors, including credit deterioration and negative rating actions on underlying U.S. subprime residential mortgage-backed securities (RMBS). The 13 downgraded U.S. cash flow and hybrid tranches have a total issuance amount of $1.746 billion. Four of the seven affected transactions are mezzanine structured finance (SF) CDOs of asset- backed securities (ABS), which are collateralized in large part by mezzanine tranches of RMBS and other SF securities. Two of the seven affected transactions are high-grade structured finance (SF) CDOs of asset-backed securities (ABS), which are collateralized in large part by high-grade tranches of RMBS and other SF securities. The remaining transaction is a hybrid CDO of CDOs that was collateralized at origination primarily by notes from other CDOs, as well as by tranches from RMBS and other SF transactions. The affirmations reflect current credit support levels that S&P believes are sufficient to maintain the current ratings. Standard & Poor's will continue to monitor the CDO transactions it rates and take rating actions, including CreditWatch placements, when appropriate. Rating actions: Rating Transaction Class To From Acacia CDO 6 Ltd A-1 B- (sf) BB (sf)/Watch Neg Acacia CDO 6 Ltd C CC (sf) CCC (sf)/Watch Neg Acacia CDO 6 Ltd D CC (sf) CCC (sf)/Watch Neg Acacia CDO 6 Ltd E-1 CC (sf) CCC- (sf)/Watch Neg Acacia CDO 6 Ltd E-2 CC (sf) CCC- (sf)/Watch Neg Aspen Funding I, Ltd. A-1L A (sf) A (sf)/Watch Neg Aspen Funding I, Ltd. A-2L BB (sf) BB (sf)/Watch Neg Aspen Funding I, Ltd. A-3L CCC- (sf) CCC- (sf)/Watch Neg Aspen Funding I, Ltd. B-1 CCC- (sf) CCC- (sf)/Watch Neg Dalton CDO Ltd A-1a1 CCC (sf) BB (sf)/Watch Neg Dalton CDO Ltd A-1a2 CC (sf) CCC- (sf)/Watch Neg E*Trade ABS CDO III Ltd A1 BB+ (sf) A- (sf)/Watch Neg E*Trade ABS CDO III Ltd A2 CC (sf) CCC- (sf)/Watch Neg Hereford Street ABS CDO I A-1 CC (sf) B- (sf)/Watch Neg Independence I CDO Ltd. A BB+ (sf) BB+ (sf)/Watch Neg Kent Funding II Ltd X D (sf) BBB- (sf)/Watch Neg Capella Funding, Ltd. 1 BB (sf) BB (sf)/Watch Neg Capital Guardian ABS CDO I A-1A A- (sf) A- (sf)/Watch Neg Capital Guardian ABS CDO I A-1B A- (sf) A- (sf)/Watch Neg Capital Guardian ABS CDO I A-1C A- (sf) A- (sf)/Watch Neg Pacific Bay CDO. Ltd. A-2 D (sf) B+ (sf)/Watch Neg Pacific Bay CDO. Ltd. A-1 AA (sf) AA (sf)/Watch Neg South Coast Funding VI Ltd A-2 CC (sf) CCC- (sf)/Watch Neg South Coast Funding VI Ltd A-1 BB+ (sf) BB+ (sf)/Watch Neg Ratings affirmed: Transaction Class Rating Aspen Funding I, Ltd. Pfd Shares CC (sf) Capital Guardian ABS CDO I, Ltd. B CC (sf) Capital Guardian ABS CDO I, Ltd. C CC (sf) Capital Guardian ABS CDO I, Ltd. Pfd Shares CC (sf) Dalton CDO Ltd A-1b1 CC (sf) Dalton CDO Ltd A-1b2 CC (sf) Dalton CDO Ltd A-2 CC (sf) Dalton CDO Ltd B CC (sf) Dalton CDO Ltd C CC (sf) Dalton CDO Ltd D CC (sf) E*Trade ABS CDO III Ltd B CC (sf) E*Trade ABS CDO III Ltd C CC (sf) E*Trade ABS CDO III Ltd Pref Shrs CC (sf) Hereford Street ABS CDO I Ltd A-2 CC (sf) Hereford Street ABS CDO I Ltd B CC (sf) Hereford Street ABS CDO I Ltd C CC (sf) Hereford Street ABS CDO I Ltd D CC (sf) Kent Funding II Ltd A-1A CC (sf) Kent Funding II Ltd A-1B CC (sf) Kent Funding II Ltd A-2 CC (sf) Kent Funding II Ltd B CC (sf) Kent Funding II Ltd C CC (sf) Kent Funding II Ltd D CC (sf) Kent Funding II Ltd E CC (sf) Pacific Bay CDO. Ltd. C CC (sf) Pacific Bay CDO. Ltd. Pre Shares CC (sf) South Coast Funding VI Ltd B CC (sf) South Coast Funding VI Ltd C CC (sf) Other outstanding ratings: Transaction Class Rating Acacia CDO 6 Ltd A-2 D (sf) Acacia CDO 6 Ltd B D (sf) Pacific Bay CDO. Ltd. B D (sf) * S&P Downgrades Ratings on Eight of US CDO Transactions -------------------------------------------------------- Standard & Poor's Ratings Services lowered its ratings on eight tranches from six U.S. cash flow and hybrid collateralized debt obligation (CDO) transactions and removed them from CreditWatch with negative implications. S&P also affirmed its ratings on 23 other tranches from six transactions and removed three of them from CreditWatch negative. The CDO downgrades reflect a number of factors, including credit deterioration and S&P's negative rating actions on underlying U.S. subprime residential mortgage-backed securities (RMBS). The eight downgraded U.S. cash flow and hybrid tranches have a total issuance amount of $1.107 billion. The affected transactions are mezzanine structured finance (SF) CDOs of asset- backed securities (ABS), which are collateralized in large part by mezzanine tranches of RMBS and other SF securities. The affirmations reflect current credit support levels that S&P believes are sufficient to maintain the current ratings. Standard & Poor's will continue to monitor the CDO transactions it rates and take rating actions, including CreditWatch placements, when appropriate. Rating actions: Rating Transaction Class To From Coronado CDO Ltd. B-1 CC (sf) CCC (sf)/Watch Neg Coronado CDO Ltd. B-2 CC (sf) CCC (sf)/Watch Neg Coronado CDO Ltd. TypeII CCC (sf) CCC (sf)/Watch Neg Glacier Funding CDO I A-1 A+ (sf) A+ (sf)/Watch Neg Glacier Funding CDO I A-2 CC (sf) B (sf)/Watch Neg Ischus CDO I Ltd A-1 B- (sf) BB- (sf)/Watch Neg MKP CBO II Ltd A-1 BBB+ (sf) A (sf)/Watch Neg Stack 2004-1 Ltd A A+ (sf) A+ (sf)/Watch Neg Stack 2004-1 Ltd B B- (sf) BB+ (sf)/Watch Neg Stack 2004-1 Ltd C CCC- (sf) CCC+ (sf)/Watch Neg Tourmaline CDO I I CC (sf) CCC- (sf)/Watch Neg Ratings affirmed: Transaction Class Rating Coronado CDO Ltd. A-1 BB+ (sf) Coronado CDO Ltd. A-2 BB+ (sf) Coronado CDO Ltd. C-1 CC (sf) Coronado CDO Ltd. C-2 CC (sf) Glacier Funding CDO I Ltd. B CC (sf) Glacier Funding CDO I Ltd. C CC (sf) Glacier Funding CDO I Ltd. Pref Shrs CC (sf) Ischus CDO I Ltd A-2 CC (sf) Ischus CDO I Ltd B CC (sf) Ischus CDO I Ltd C-1 CC (sf) Ischus CDO I Ltd C-2 CC (sf) Ischus CDO I Ltd Combo Secs CC (sf) MKP CBO II Ltd A-2 CC (sf) MKP CBO II Ltd B CC (sf) MKP CBO II Ltd C-1 CC (sf) MKP CBO II Ltd C-2 CC (sf) Stack 2004-1 Ltd D CC (sf) Tourmaline CDO I Ltd. II CC (sf) Tourmaline CDO I Ltd. III CC (sf) Tourmaline CDO I Ltd. IV CC (sf) * S&P Downgrades Ratings on Six Tranches of CDO Transactions ------------------------------------------------------------ Standard & Poor's Ratings Services lowered its ratings on six tranches from five U.S. cash flow and hybrid collateralized debt obligation (CDO) transactions and removed them from CreditWatch with negative implications. S&P also affirmed its ratings on 25 other tranches from 10 transactions and removed 12 of them from CreditWatch negative. The CDO downgrades reflect a number of factors, including credit deterioration and negative rating actions on underlying U.S. subprime residential mortgage-backed securities (RMBS). The six downgraded U.S. cash flow and hybrid tranches have a total issuance amount of $706.9 million. Four of the five affected transactions are mezzanine structured finance (SF) CDOs of asset- backed securities (ABS), which are collateralized in large part by mezzanine tranches of RMBS and other SF securities. The remaining transaction is a hybrid CDO of CDOs that was collateralized at origination primarily by notes from other CDOs, well as by tranches from RMBS and other SF transactions. The affirmations reflect current credit support levels that S&P believes are sufficient to maintain the current ratings. Standard & Poor's will continue to monitor the CDO transactions it rates and take rating actions, including CreditWatch placements, when appropriate. RATING ACTIONS: Rating Transaction Class To From Bristol CDO I Ltd. A-1 AA (sf) AA (sf)/Watch Neg Bristol CDO I Ltd. A-2 AA (sf) AA (sf)/Watch Neg C-Bass CBO V Ltd. B AA (sf) AA (sf)/Watch Neg C-Bass CBO V Ltd. C A+ (sf) A+ (sf)/Watch Neg C-Bass CBO V Ltd. D-1 BB (sf) BB (sf)/Watch Neg C-Bass CBO V Ltd. D-2 BB (sf) BB (sf)/Watch Neg Commodore CDO I Ltd. A BB+ (sf) BBB (sf)/Watch Neg MKP CBO IV Ltd. A-1 CCC (sf) BB+ (sf)/Watch Neg Phoenix CDO II Ltd. A AA (sf) AA (sf)/Watch Neg Porter Square CDO I Ltd. A-3 AA (sf) AA (sf)/Watch Neg Porter Square CDO I Ltd. B B- (sf) B- (sf)/Watch Neg Saturn Ventures I Ltd. A-1 AA (sf) AA (sf)/Watch Neg Saturn Ventures I Ltd. A-2 BB- (sf) BB+ (sf)/Watch Neg SFA CABS II CDO Ltd. A A (sf) A (sf)/Watch Neg Tricadia CDO 2006-5 Ltd. B B (sf) BB (sf)/Watch Neg Tricadia CDO 2006-5 Ltd. C CCC- (sf) CCC+ (sf)/Watch Neg Vermeer Funding Ltd. A-1 A+ (sf) A+ (sf)/Watch Neg Vermeer Funding Ltd. A-2 B (sf) BB (sf)/Watch Neg RATINGS AFFIRMED: Transaction Class Rating Bristol CDO I Ltd. B CC (sf) Bristol CDO I Ltd. C CC (sf) Commodore CDO I Ltd. B CCC- (sf) Commodore CDO I Ltd. C CC (sf) MKP CBO IV Ltd. C CC (sf) Porter Square CDO I Ltd. C CC (sf) Saturn Ventures I Ltd. A-3 CC (sf) Saturn Ventures I Ltd. B CC (sf) Tricadia CDO 2006-5 Ltd. D CC (sf) Tricadia CDO 2006-5 Ltd. E CC (sf) Tricadia CDO 2006-5 Ltd. F CC (sf) Vermeer Funding Ltd. B CC (sf) Vermeer Funding Ltd. C CC (sf) OTHER RATINGS OUTSTANDING: Transaction Class Rating MKP CBO IV Ltd. A-2 D (sf) MKP CBO IV Ltd. B D (sf) * S&P Puts Ratings on 51 Tranches on CreditWatch Positive --------------------------------------------------------- Standard & Poor's Ratings Services placed its ratings on 51 tranches from 29 U.S. collateralized loan obligation transactions on CreditWatch with positive implications. At the same time, S&P placed its ratings on three tranches from three U.S. collateralized debt obligation transactions that are retranchings of other CDO tranches on CreditWatch with negative implications. The combined 54 tranches have a total issuance amount of $8.453 billion. The CreditWatch placements follow S&P's most recent monthly review of U.S. cash flow and hybrid CDO performance. The rationale for the rating actions are based on both quantitative and qualitative performance parameters, including transaction structural features and a broad view of the underlying collateral within each transaction, including these: * A change in Standard & Poor's rated overcollateralization metric. This ratio, which S&P review monthly based on current collateral ratings, provides an estimate of the stability of the current rating on a given cash flow CDO tranche; * An increase in paydowns to the senior tranches from both scheduled and unscheduled asset amortizations; and * A change in the level of overcollateralization available to support each tranche since origination, or since S&P's last rating action. S&P will resolve the CreditWatch placements after S&P complete a comprehensive cash flow analysis for each of the affected transactions, and after S&P evaluate additional information S&P may receive during discussions with the relevant collateral managers. S&P expects to resolve these CreditWatch placements within 90 days. Standard & Poor's will continue to monitor the CDO transactions it rates and take rating actions, including CreditWatch placements, as S&P deem appropriate. Ratings Placed On Creditwatch Rating ------ Transaction Class To From ----------- ----- -- ---- 505 CLO I Ltd A A+ (sf)/Watch Pos A+ (sf) 505 CLO II Ltd B AA (sf)/Watch Pos AA (sf) 505 CLO II Ltd C A (sf)/Watch Pos A (sf) 505 CLO III Ltd B AA (sf)/Watch Pos AA (sf) 505 CLO III Ltd C A (sf)/Watch Pos A (sf) 505 CLO III Ltd D BBB (sf)/Watch Pos BBB (sf) 505 CLO III Ltd E BB (sf)/Watch Pos BB (sf) Artus Loan Fund 2007-I A-1L AA- (sf)/Watch Pos AA- (sf) Artus Loan Fund 2007-I A-2L A- (sf)/Watch Pos A- (sf) Avenue CLO IV Ltd A BBB- (sf)/Watch Pos BBB- (sf) CapitalSource Commercial Loan 2007-1 A BBB+ (sf)/Watch Pos BBB+ (sf) Castle Hill III CLO A-1a AA+ (sf)/Watch Pos AA+ (sf) Castle Hill III CLO A-1b AA+ (sf)/Watch Pos AA+ (sf) Castle Hill III CLO B BB+ (sf)/Watch Pos BB+ (sf) Classic Finance BV A A (sf)/Watch Neg A (sf) Clydesdale CLO 2003 A AA- (sf)/Watch Pos AA- (sf) Endurance CLO I Ltd A A+ (sf)/Watch Pos A+ (sf) Field Point IV Ltd A-1 BBB+ (sf)/Watch Pos BBB+ (sf) Franklin CLO IV B A+ (sf)/Watch Pos A+ (sf) Franklin CLO IV C BBB (sf)/Watch Pos BBB (sf) Galaxy CLO 2003-1 A AA+ (sf)/Watch Pos AA+ (sf) Galaxy CLO 2003-1 B A (sf)/Watch Pos A (sf) GE Commercial Loan Trust 2006-1 A-2 BBB+ (sf)/Watch Pos BBB+ (sf) GE Commercial Loan Trust 2006-1 B CCC+ (sf)/Watch Pos CCC+ (sf) GE Commercial Loan Trust 2006-1 C CCC- (sf)/Watch Pos CCC- (sf) GE Commercial Loan Trust 2006-2 A-2 BBB+ (sf)/Watch Pos BBB+ (sf) GE Commercial Loan Trust 2006-2 B BB+ (sf)/Watch Pos BB+ (sf) GE Commercial Loan Trust 2006-2 C CCC- (sf)/Watch Pos CCC- (sf) GE Commercial Loan Trust 2006-3 A-2 BB+ (sf)/Watch Pos BB+ (sf) GE Commercial Loan Trust 2006-3 B CCC- (sf)/Watch Pos CCC- (sf) Grand Horn CLO Ltd A AA+ (sf)/Watch Pos AA+ (sf) Grand Horn CLO Ltd B AA (sf)/Watch Pos AA (sf) Gulf Stream-Compass CLO 2002-I A AA+ (sf)/Watch Pos AA+ (sf) Gulf Stream-Compass CLO 2002-I B A+ (sf)/Watch Pos A+ (sf) Gulf Stream-Compass CLO 2003-1 A AA+ (sf)/Watch Pos AA+ (sf) Gulf Stream-Compass CLO 2003-1 B A+ (sf)/Watch Pos A+ (sf) Gulf Stream-Compass CLO 2004-1 A A- (sf)/Watch Pos A- (sf) Gulf Stream-Compass CLO 2004-1 C BB+ (sf)/Watch Pos BB+ (sf) Katonah IV Ltd A AA+ (sf)/Watch Pos AA+ (sf) LCM I L.P. D-1 CCC+ (sf)/Watch Pos CCC+ (sf) LCM I L.P. D-2 CCC+ (sf)/Watch Pos CCC+ (sf) Merritt Funding Trust 2005-2 B BBB+ (sf)/Watch Pos BBB+ (sf) Race Point II CLO A-1 AA+ (sf)/Watch Pos AA+ (sf) RACERS 2007-2-E Certs 2006-2-E B+ (sf)/Watch Neg B+ (sf) Rosemont CLO Ltd. B-1 AA- (sf)/Watch Pos AA- (sf) Rosemont CLO Ltd. B-2 AA- (sf)/Watch Pos AA- (sf) Sagamore CLO Ltd A-1 A+ (sf)/Watch Pos A+ (sf) Sagamore CLO Ltd A-2 A+ (sf)/Watch Pos A+ (sf) Sagamore CLO Ltd A-3 A+ (sf)/Watch Pos A+ (sf) Senior ABS Repack Trust A-2 AAA (sf)/Watch Neg AAA (sf) SFR Ltd A A+ (sf)/Watch Pos A+ (sf) Stedman Loan Fund II A-1 AA+ (sf)/Watch Pos AA+ (sf) Stedman Loan Fund II A-2 A+ (sf)/Watch Pos A+ (sf) TCW Select Loan Fund B AA+ (sf)/Watch Pos AA+ (sf) TCW Select Loan Fund C A (sf)/Watch Pos A (sf) Veer Cash Flow CLO SrRtNts A+ (sf)/Watch Pos A+ (sf) ********* S U B S C R I P T I O N I N F O R M A T I O N Troubled Company Reporter is a daily newsletter co-published by Bankruptcy Creditors" Service, Inc., Fairless Hills, Pennsylvania, USA, and Beard Group, Inc., Frederick, Maryland, USA. Marites Claro, Joy Agravante, Rousel Elaine Tumanda, Howard C. Tolentino, Joseph Medel C. Martirez, Denise Marie Varquez, Philline Reluya, Ronald C. Sy, Joel Anthony G. Lopez, Cecil R. Villacampa, Sheryl Joy P. Olano, Carlo Fernandez, Christopher G. Patalinghug, and Peter A. Chapman, Editors. Copyright 2010. All rights reserved. ISSN: 1520-9474. This material is copyrighted and any commercial use, resale or publication in any form (including e-mail forwarding, electronic re-mailing and photocopying) is strictly prohibited without prior written permission of the publishers. Information contained herein is obtained from sources believed to be reliable, but is not guaranteed. The TCR subscription rate is $775 for 6 months delivered via e- mail. Additional e-mail subscriptions for members of the same firm for the term of the initial subscription or balance thereof are $25 each. For subscription information, contact Christopher Beard at 240/629-3300. *** End of Transmission ***