Moody’s affirms all classes of Gramercy Real Estate
Global rating agency Moody’s has affirmed the ratings of all classes of Notes issued by Gramercy Real Estate CDO 2005-1, Ltd.
The affirmations are due to key transaction parameters performing within levels commensurate with the existing ratings levels. The rating action is the result of Moody’s ongoing surveillance of commercial real estate collateralized debt obligation and collateralized loan obligation (CRE CDO CLO) transactions.
Gramercy Real Estate CDO 20051, Ltd. is a static (the reinvestment period ended in July 2010) cash transaction backed by a portfolio of whole loans (53.1% of the pool balance), commercial mortgage backed securi- ties (CMBS) including rake bonds (29.8%), mezzanine loans (9.7%), and B-Notes (7.4%). As of the September 28, 2012 trustee report, the aggregate Note balance of the transaction, including Preference Shares, has decreased to $760.7 million from $1.0 billion at issuance, as a result of the combination of the junior notes cancellation to Class E, Class F, Class G, and Class H Notes and of the paydown directed to the Class A-1 Notes from regular amortization of collateral, resolution and sales of defaulted collateral, and interest proceeds paid as principal proceeds as a result of failing the par value tests. In general, holding all key parameters static, the junior note cancellations results in slightly higher expected losses and longer weighted average lives on the senior Notes, while producing slightly lower expected losses on the mezzanine and junior Notes. However, this does not cause, in and of itself, a downgrade or upgrade of any outstanding classes of Notes. The transaction is failing its two par value tests while passing all of its interest coverage tests. Currently, the transaction is over-collateralized by $39.2 million (including cash principal available for regular distribution).
There are nine assets with par balance of $243.1 million (30.9% of the current pool balance) that are considered defaulted securities as of the September 28, 2012 trustee report, compared to three defaulted securities totaling $151.9 million par amount (16.8%) at last review. Moody’s does expect moderate to significant losses to occur from these defaulted securities once they are realized.
Moody’s has identified the following parameters as key indicators of the expected loss within CRE CDO transactions: weighted average rating factor (WARF), weighted average life (WAL), weighted average recovery rate (WARR), and Moody’s asset correlation (MAC). These parameters are typically modeled as actual parameters for static deals and as covenants for managed deals.
WARF is a primary measure of the credit quality of a CRE CDO pool. We have completed updated assessments for the non-Moody’s rated collateral. The bottom-dollar WARF is a measure of the default probability within a collateral pool. Moody’s modeled a bottom-dollar WARF of 5,572 compared to 5,007 at last review. The current distribution of Moody’s rated collateral and assessments for non-Moody’s rated collateral is as follows: Aaa-Aa3 (10.4% compared to 11.2%), A1-A3 (4.0% compared to 6.7%),Baa1-Baa3 (5.4% compared to 2.1% at last review), Ba1-Ba3 (9.6% compared to 14.3% at last review), B1-B3 (6.6% compared to 10.1% at last review), and Caa1Ca/C (64.0% compared to 55.6% at last review).
Moody’s modeled to a WAL of 3.0 years, the same as that at last review. The current WAL is based on the assumption about extensions.
Changes in any one or combination of the key parameters may have rating implications on certain classes of rated notes.