Fitch Rates Morgan Stanley Resecuritization Trust 2015-R4

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has assigned the following ratings and Rating Outlooks to three groups in Morgan Stanley Resecuritization Trust (MSRR) 2015-R4:

Group 2 Securities

--$34,826,000 class 2-A 'BBBsf'; Outlook Stable;

--$5,547,000 Initial Exchangeable class 2-B1 'BBsf'; Outlook Stable;

--$3,826,000 Initial Exchangeable class 2-B2 'Bsf'; Outlook Stable;

--$751,105 Initial Exchangeable class 2-B3 not rated;

--$9,373,000 Subsequent Exchangeable class 2-B4 'Bsf'; Outlook Stable;

--$4,577,105 Subsequent Exchangeable class 2-B5 not rated;

--$10,124,105 Subsequent Exchangeable class 2-B not rated.

Group 3 Securities

--$12,015,000 class 3-A 'BBBsf'; Outlook Stable;

--$1,914,000 Initial Exchangeable class 3-B1 'BBsf'; Outlook Stable;

--$1,320,000 Initial Exchangeable class 3-B2 'Bsf'; Outlook Stable;

--$259,204 Initial Exchangeable class 3-B3 not rated;

--$3,234,000 Subsequent Exchangeable class 3-B4 'Bsf'; Outlook Stable;

--$1,579,204 Subsequent Exchangeable class 3-B5 not rated;

--$3,493,204 Subsequent Exchangeable class 3-B not rated.

Group CB Securities

--$7,461,000 Subsequent Exchangeable class CB-1 'BBsf'; Outlook Stable;

--$5,146,000 Subsequent Exchangeable class CB-2 'Bsf'; Outlook Stable;

--$1,010,309 Subsequent Exchangeable class CB-3 not rated;

--$12,607,000 Subsequent Exchangeable class CB-4 'Bsf'; Outlook Stable;

--$6,156,309 Subsequent Exchangeable class CB-5 not rated;

--$13,617,309 Subsequent Exchangeable class CB not rated.

KEY RATING DRIVERS

MSRR 2015-R4 is composed of five groups, and Fitch is rating eight bonds from two of the groups. In addition, Fitch is also assigning ratings to three classes from the group that is composed of combinations between Group 2 and Group 3 securities. Each group is a resecuritization of an ownership interest in residential mortgage-backed securities. As a resecuritization, the securities will receive their cashflow from the underlying security. The Fitch-rated groups are collateralized with a senior class from an Alt A transaction issued in 2005. Collateral performance has shown improvement over the past few years. The underlying pool has exhibited improvement in the percentage of loans seriously delinquent and has losses to date much lower than similar loans from this vintage.

For the Fitch rated group, interest is paid pro rata and principal is paid sequentially. Realized losses are applied reverse sequentially.

Key rating drivers include the performance of the underlying pool as well as the collateral characteristics, such as sustainable loan-to-value ratio (sLTV), credit score and geographic concentration. For the Fitch rated group, Fitch ran various prepayment speeds and loss timing scenarios in its analysis of the deal structure. This analysis was done to determine that the cash flow to the Fitch rated bonds would not be exposed to losses as a result of potential alternative cashflow timing stress scenarios.

Group 2 represents a 71.44% interest in the WaMu Mortgage Pass-Through Certificates, Series 2005-AR11 Class A1B3 while Group 3 represents a 39.02% interest in the WaMu Mortgage Pass-Through Certificates, Series 2005-AR11 Class A1B2. Based on the collateral composition of the underlying pool, Fitch assumed a base-case scenario expected loss (XL) of 13.76%. In the rating stress scenarios, Fitch assumed a 'BBBsf' XL of 24.69%. Fitch increased the model-expected loss severity on liquidated loans by 10% at each rating scenario to better reflect recent loss severity trends. Fitch ran these loss assumptions through 12 different interest rate, prepayment and timing scenarios and used the most conservative value to determine the required credit enhancement (CE).

Given the payment structure and allocation of losses for WaMu Mortgage Pass-Through Certificates, Series 2005-AR11, both class A1B2 and A1B3 have identical cashflows. The required CE to support a 'BBBsf' rating for both Re-REMIC groups is 22.52%. While the required CE is lower than the expected pool loss for a BBBsf rating stress, this number takes into account the more than 28% CE still outstanding on the underlying bonds and the fact that the A1B3 and A1B2 are senior support classes.

The group CB securities are combinations of similar classes from Group 2 and Group 3. Since both groups are expected to have identical cashflows, combining classes into a permissible CB class does not impact the projected recoveries, it merely results in a larger sized class.

Fitch is assigning the ratings based on underlying pool collateral composition, the results of its cashflow analysis, review of final structure and supporting deal documents.

RATING SENSITIVITIES

Fitch analyses each bond in a number of different scenarios to determine the likelihood of full principal recovery and timely interest. The scenario analysis incorporates various combinations of the following stressed assumptions: mortgage loss, loss timing, interest rates, prepayments, servicer advancing and loan modifications.

The analysis includes rating stress scenarios from 'CCCsf' to 'AAAsf'. The 'CCCsf' scenario is intended to be the most likely base-case scenario. Rating scenarios above 'CCCsf' are increasingly more stressful and less likely outcomes. Although many variables are adjusted in the stress scenarios, the primary driver of the loss scenarios is the home price forecast assumption. In the 'Bsf' scenario, Fitch assumes home prices decline 10% below their long-term sustainable level. The home price decline assumption is increased by 5% at each higher rating category up to a 35% decline in the 'AAAsf' scenario.

The publication of a RW&Es appendix is not required for this transaction as stated in Fitch's Representations, Warranties and Enforcement Mechanisms in Global Structured Finance Transactions Report dated June 12,2015.

DUE DILIGENCE USAGE

No third party due diligence was provided or reviewed in relation to this rating action.

Additional information is available at www.fitchratings.com.

Sources of Information:

In addition to the information sources identified in Fitch's criteria listed below, Fitch's analysis incorporated information from the LoanPerformance database including underlying loan level information and from Intex for the underlying bond structure. The RE-REMIC structure was provided by Morgan Stanley & Co. LLC

Applicable Criteria

Counterparty Criteria for Structured Finance and Covered Bonds (pub. 14 May 2014)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=744158

Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds (pub. 19 Dec 2014)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=838868

Criteria for Rating Caps and Limitations in Global Structured Finance Transactions (pub. 28 May 2014)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=748781

Global Structured Finance Rating Criteria (pub. 31 Mar 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=864268

Rating Criteria for U.S. Residential and Small Balance Commercial Mortgage Servicers (pub. 23 Apr 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=864368

U.S. RMBS Cash Flow Analysis Criteria (pub. 06 Apr 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=863973

U.S. RMBS Loan Loss Model Criteria (pub. 17 Nov 2014)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=810788

U.S. RMBS Master Rating Criteria (pub. 12 Jun 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=866607

U.S. RMBS Surveillance and Re-REMIC Criteria (pub. 01 Jun 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=866259

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=987242

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=987242

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

View source version on businesswire.com: http://www.businesswire.com/news/home/20150630006511/en/

Fitch Ratings
Primary Analyst
Ryan O'Loughlin
Associate Director
+1-212-908-0387
Fitch Ratings, Inc.
New York, NY 10004
or
Secondary Analyst
Sean Nelson
Director
+1-212-908-0207
or
Committee Chairperson
Roelof Slump
Managing Director
+1-212-908-0705
or
Media Relations:
Sandro Scenga, +1 212-908-0278
[email protected]

Source: Fitch Ratings

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