 |
NEW YORK (Standard & Poor's) April 29, 2008--Standard & Poor's Ratings
Services today lowered its ratings on 196 classes from 96 U.S. net interest
margin securities (NIMS) transactions backed by U.S. subprime residential
mortgage-backed securities (RMBS). Of these 196 classes, we downgraded class A
from SASCO NIMS Trust 2007-WF1 to 'A-/Watch Neg' from 'AA' due to the
downgrade of the respective bond insurer. At the same time, we affirmed our
ratings on 52 classes from 40 U.S. NIMS transactions backed by U.S. subprime
RMBS. Additionally, our ratings on 10 classes from nine subprime NIMS deals
remain on CreditWatch negative based on the ratings on the respective bond
insurers.
The distribution of the rating actions involving the 195 ratings being lowered
(excludes the bond insured class mentioned above) is as follows:
-- 48 ratings from 21 transactions were lowered to 'CC';
-- 104 ratings from 57 transactions were lowered to 'CCC';
-- One rating from one transaction was lowered to 'B-';
-- 31 ratings from 28 transactions were lowered to 'B';
-- 10 ratings from 10 transactions were lowered to 'B+'; and
-- One rating from one transaction was lowered to 'BB';
The complete ratings list, along with a related transition matrix, is included
in "U.S. Subprime RMBS NIMS Classes Affected By April 29, 2008, Rating Actions,
" available on RatingsDirect. The tables can also be found on Standard &
Poor's Web site, at www.standardandpoors.com. Select "Products and Services"
and then "Ratings." Choose "Standard & Poor's Views On The Subprime And
Related Mortgage Markets" and scroll down to "Structured Finance." The list
can also be found on www.spviews.com, Standard & Poor's special Web site for
subprime RMBS and related mortgage matters.
STANDARD & POOR'S SURVEILLANCE ASSUMPTIONS
The primary source of payments to NIMS is the difference between the interest
payments collected on the mortgages in the underlying transactions and the
interest owed to the related RMBS, together with prepayment penalties and
potential payments from derivative contracts. We believe that the current
levels of delinquencies and losses occurring in the subprime mortgage market
have significantly reduced the levels of excess interest available to many of
the NIMS.
We evaluated a number of performance measures for the U.S. subprime NIMS RMBS
transactions, including the results of the cash flow analysis. These
performance measures included the amount and type of cash (excess interest,
prepayment penalty fees, and cap payments) received from the underlying
transaction(s); the rate at which the NIMS are repaying relative to original
projections; whether or not the NIMS have incurred actual interest shortfalls;
and the outstanding principal balance relative to the amount of cash being
received from its underlying transaction(s).
The cash flow projections include the residual cash flows (excess interest and
prepayment penalty fees) from each underlying U.S. RMBS transaction's cash
flow stress run, as well as the projected proceeds from any cap contract, if
applicable. The cash flow projections indicated whether or not, in our view,
each NIMS class is expected to pay off and whether or not interest shortfalls
will occur.
IMPACT ON CURRENT RATINGS
Losses on the underlying U.S. subprime RMBS, and the timing of such losses,
have a direct effect on the cash flows to the NIMS transactions. Once the
level of overcollateralization for an underlying transaction falls below its
target, the excess spread available to the NIMS transaction is reduced or
eliminated as the underlying transaction covers current and previous losses
and rebuilds to its overcollateralization target.
Today's downgrades affect a total of 96 U.S. subprime RMBS NIMS transactions.
The 196 downgraded classes have a current balance of $1.535 billion, which
represents 74.44% of the approximately $2.062 billion currently outstanding in
U.S. NIMS backed by U.S. subprime mortgage securities rated by Standard &
Poor's in 2007. The original total balance of U.S. NIMS backed by all types of
residential mortgage securities issued in the non-agency market in 2007 was
more than $5.382 billion.
Approximately 63.93% of the downgraded NIMS classes, as a percentage of the
total $1.535 billion in downgraded NIMS securities, were rated 'BBB' or lower
before these rating actions. The resulting ratings associated with the
downgraded classes, as a percentage of the total $1.535 billion in downgraded
securities, are as follows:
Rating (%)
CC 22.68
CCC 57.35
B- 0.24
B 13.61
B+ 5.44
BB 0.12
A-/Watch Neg 0.57
The downgrades reflect our opinion that the cash flow projections run at the
time we assigned the original ratings to these transactions indicated that
many of the classes from these transactions should have either paid in full
already or should be ahead of their current payment levels. However, due to
the performance of the underlying transactions, as well as
higher-than-projected losses and prepayment speeds, these NIMS transactions
have not received the cash flows originally projected. The net impact is that
these transactions currently have higher class balances than they were
projected to have at this point, due, in our view, to the decreasing amount of
cash flow that is being generated from the underlying deal(s).
This scenario is exacerbated in structures where there are multiple NIMS
classes. We believe that the sequential paydown structure of the NIMS
compounds how far behind in paydown the lower-rated classes are relative to
our projections. This in turn effectively prevents these lower-rated classes
from receiving any cash flow until the above NIMS class(es) are paid down.
The 52 classes with affirmed ratings and the 10 classes with ratings on
CreditWatch have a current balance of $0.527 billion, which represents 25.56%
of the approximately $2.062 billion currently outstanding in U.S. NIMS backed
by U.S. subprime mortgage securities rated by Standard & Poor's in 2007.
Approximately 21.22% of the U.S. subprime NIMS classes with affirmed ratings
and the 10 classes with ratings on CreditWatch, as a percentage of the total
$0.527 billion in NIMS securities with affirmed ratings, were rated 'BBB' or
lower before these rating actions. The affirmed ratings on these classes, as a
percentage of the total $0.527 billion in securities with affirmed ratings,
are as follows:
Rating (%)
CCC 2.55
BB 2.92
BB+ 4.28
BBB- 10.79
BBB 0.68
BBB+ 0.50
A- 19.29
A-/Watch Neg 26.37
A 2.80
AA/Watch Neg 7.76
AAA 22.06
We also affirmed our ratings on the NIMS classes that are bond-insured or are
projected to pay in full under the aforementioned surveillance assumptions.
NIMS are generally short-term instruments with average tenures of less than 36
months. The average balance for the outstanding NIMS, as a percentage of the
initial NIMS balance, is as follows:
Issuance by quarter (%)
First-quarter 2007 48.80
Second-quarter 2007 55.26
Third-quarter 2007 42.27
Fourth-quarter 2007 0.00*
*No NIMS were rated in fourth-quarter 2007.
BOND-INSURED CLASSES
We affirmed our ratings on 10 bond-insured classes from nine U.S. subprime
NIMS deals so they are in line with the current rating on the respective
insurers. In addition, we downgraded the class A SASCO NIMS Trust 2007-WF1 to
'A-/Watch Neg' from 'AA' due to the downgrade of the respective bond insurer.
The complete ratings list for the bond insurers is available in "Bond Insurer
Ratings: Current List," published April 9, 2008, on RatingsDirect.
IMPACT ON ABCP, SIVs, AND CDOs
Standard & Poor's has performed a global review of its rated asset-backed
commercial paper (ABCP) conduits with exposure to these downgraded U.S. NIMS
classes. Our review shows that today's rating actions do not adversely affect
the ratings on these ABCP conduits.
Standard & Poor's has also completed a review of all the structured investment
vehicle (SIV) and SIV-lite structures it rates with regard to exposure to the
U.S. subprime NIMS classes downgraded today. In our view, no rated SIV or
SIV-lite structure has exposure to the affected U.S. NIMS classes, and
therefore today's rating actions do not adversely affect our ratings on SIVs
and SIV-lites.
Standard & Poor's has also completed a global review of the collateralized
debt obligation (CDO) transactions it rates with regard to exposure to these
downgraded U.S. subprime NIMS classes. Our review shows that today's rating
actions will have no impact on the ratings on our publicly rated CDO
transactions.
Standard & Poor's will continue to monitor the performance of the underlying
subprime RMBS transactions and the related NIMS. We regularly review our
assumptions as new information becomes available, and we will continue to
revise our assumptions, publish updates, and keep market participants informed
of changes.
Standard & Poor's, a division of The McGraw-Hill Companies (NYSE:MHP), is the
world's foremost provider of independent credit ratings, indices, risk
evaluation, investment research and data. With approximately 6,300 employees
located in 20 countries and markets, Standard & Poor's is an essential part of
the world's financial infrastructure and has played a leading role for more
than 140 years in providing investors with the independent benchmarks they
need to feel more confident about their investment and financial decisions.
|
