Moody’s Investors Service said Monday it would not give any classes of
As it stands, “although many features…are strong, they do not strike the right balance with its weaknesses,” Moody’s said in a press release. “The weak elements expose investors to the risk of loss on defective loans and allow the issuer and representations and warranties (R&W) providers to retain no credit risk and avoid repurchasing defective loans.”
Moody’s said if the deal “had an adequate pre-closing third-party review (TPR) scope and results,” its maximum ratings “would likely be in the Aa1 (sf) to Aa3 (sf) range,” representing investment grade ratings a little lower than its top Aaa rating. If the TPR scope was narrow, “Moody's maximum ratings would likely be lower, in the A1 (sf) to A3 (sf) range,” according to the company.
“If the TPR scope and results were adequate and some form of effective economic alignment of interests mitigated the weak R&W framework, this transaction could achieve a Aaa (sf) rating,” the company added.
Presale reports from Fitch and Kroll last week also noted some similar weaknesses in the transaction but assigned top ratings on a preliminary basis to senior classes of the deal. A Fitch analyst said
From time-to-time, rating agencies will issue what are sometimes called “hostile ratings” on deals they examine but have not been chosen to rate, a practice Moody’s in particular is historically known for
Proponents of the practice argue that it can help provide an unbiased view of the transactions in question, given that the opinion is provided without payment, and regulatory reform has moved in this direction. But detractors argue that the move is still biased in that it may stem from competition between rating agencies.
