www.moodys.com Special Comment Moody s Credit Policy March 2008 Table of Contents: Key Findings 1 An Overview of Rating Distributions and Transitions 3 Analysis of Rating Transition Trends 6 Sector Specific Analysis of Rating Transitions 9 Appendix I: Description of Data Sample and Glossary 16 Appendix II: Methodology 20 Appendix III: Multi-Year Horizon Transition Matrices 21 Related Research 33 Analyst Contacts: New York 1.212.553.1653 Debjani Dutta Roy Associate Analyst 0 Julia Tung Vice President Senior Credit Officer 0 Richard Cantor Team Managing Director Sydney 61.2.9270.8100 Henry Charpentier Team Managing Director Hong Kong 852.2916.1121 Jerome Cheng Vice President Senior Credit Officer Asia-Pacific (ex-japan) Structured Finance Rating Transitions: 1990-2007 This is Moody s second annual Asia-Pacific (ex-japan) structured finance rating transition study. We review the 2007 and historical transition rates both on an aggregate basis and within key asset classes. Key Findings The credit performance of structured finance ratings in the Asia-Pacific (ex-japan) market avoided much of the turmoil that occurred in the global market in 2007. Ratings in this region experienced a stability rate in excess of 97%, much higher than that of global structured finance and of corporate ratings in the same region. The 12-month downgrade rate increased slightly to 2% in 2007 compared to 1.8% in 2006. Meanwhile, the upgrade rate dropped from 4.7% to in 2006 to 0.7% in 2007. The average magnitude of both downgrades and upgrades was roughly 1.6 notches, below the historical average of approximately 2 notches. All rating changes in 2007 occurred among AS and CDOs. The AS sector experienced 3 downgrades and 5 upgrades, while CDOs experienced 11 downgrades and 2 upgrades. The RMS and CMS sectors experienced no rating transitions in 2007. Changes in corporate ratings and their subsequent effect on the credit quality of CDO portfolios were the major cause of Asia-Pacific rating downgrades. The most common reason for upgrades was the upgrade of a credit support provider due to refinements in Moody s bank rating methodology.
Exhibit 1: Asia-Pacific 1 Structured Finance 12-Month Downgrade and Upgrade Rates by Sector in 2007, 2006, and Averaged over 1998-2007 2 12-Month Downgrade Rate 12-Month Upgrade Rate 2007 2006 1998-2007 2007 2006 1998-2007 Asia-Pacific (ex-japan) Structured Finance 2.0% 1.8% 1.5% 0.7% 4.7% 2.1% AS 3.2% 0.0% 1.7% 4.3% 2.7% 4.7% CDOs 13.8% 20.0% 10.3% 1.3% 0.0% 2.5% CMS 0.0% 0.0% 6.6% 0.0% 0.0% 2.5% RMS 0.0% 0.0% 0.0% 0.0% 5.9% 1.6% Asia-Pacific (ex-japan) Corporate 3 6.6% 3.8% 9.6% 33.9% 18.6% 17.1% Global Structured Finance 7.4% 1.2% 2.6% 2.2% 3.6% 2.6% Global Corporate 8.7% 9.5% 13.8% 18.7% 13.0% 11.1% 1 Japanese structured finance securities are excluded from this study and their rating transitions are studied in a separate report. Please refer to Moody s Special Comment, Japanese Structured Finance Rating Transitions: 1994-2007, March 2008. For global structured finance rating transitions, see Moody s Special Comment, Structured Finance Rating Transitions: 1983-2007, February 2008. 2 For a definition of terms please refer to the glossary in the Appendix. 3 A large proportion of corporate upgrades in 2007 resulted from changes in the corporate rating methodology from JDA and foreign ceiling adjustments. 2 March 2008 Special Comment Moody s Credit Policy
An Overview of Rating Distributions and Transitions Structured finance ratings in the Asia-Pacific (ex-japan) region avoided much of the turmoil that occurred in the global market in 2007 caused largely by problems in the US residential housing market, particularly for subprime borrowers. While the global structured finance downgrade rate soared to a historical high in 2007, Asia-Pacific ratings remained very stable, experiencing low numbers of both downgrades and upgrades. Exhibit 2A reveals that the 35% issuance growth observed in 2006 was erased in 2007 as the number of new tranches issued in 2007 returned to the 2005 level. 4 While issuance levels declined across all sectors, the steepest drop was observed in CMS, down 60% from the prior year, followed by RMS with a 50% decrease. AS and CDOs saw more moderate declines with both sectors experiencing a 13% decrease in issuance. However, 2007 was a year of two halves, with a record number of ratings issued in the first half of 2007 compared to prior first halves, but issuance dropping 41% in the latter half of the year relative to the first. This change was the result of a sharp drop in RMS new issuance as the number of new ratings issued in the latter half of the year contributed only 25% to total RMS issuance for 2007 (Exhibit 2). Issuance in the other sectors was more evenly split between the two halves and even increased from the first half to the second for AS and CDOs. Note that the criteria used to create the data set for this report has changed from prior years. The most notable changes are that pari-passu tranches are no longer collapsed and wrapped tranches are included. In addition, the rating immediately prior to withdrawal is now used to count downgrades and upgrades. For a more detailed description of the data sample and calculation methods, please see the Appendix. Multi-year horizon transition matrices can also be found in the Appendix. Exhibit 2A : Number of New Tranches Issued in Each Year 250 200 150 100 50 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 AS CMS RMS CDOs Sector # Ratings issued in 2007 Exhibit 2: Issuance in 2007 # Ratings issued in 2007 H1 # Ratings issued in 2007 H2 % of Issuance in 2007 H1 % of Issuance in 2007 H2 AS 32 14 18 43.8% 56.3% CMS 8 4 4 50.0% 50.0% RMS 93 70 23 75.3% 24.7% CDO 21 9 12 42.9% 57.1% Total 154 97 57 63.0% 37.0% 4 Note that National Scale Ratings (NSR s) are excluded from the data sample. 3 March 2008 Special Comment Moody s Credit Policy
Exhibit 3A reveals that out of the 698 ratings outstanding in 2007, 96.6% were rated investment grade and 54.6% were rated Aaa. oth percentages were higher than globally where the breakdown is 91.8% and 50.7%, respectively. The breakdown by sector in the Asia-Pacific region is comparable to the global composition of asset classes with the largest percentage in residential mortgage-backed securities and smaller, comparable proportions in AS, CDOs, and CMS. Exhibit 3 : Distribution of Outstanding Ratings in 2007 Exhibit 3A : Outstanding Total (698) a 2.7% 0.7% aa 5.6% A 8.6% <=Caa 0.0% Exhibit 3 : Outstanding Total (698) AS 13.5% CDOs 11.5% Aa 27.8% Aaa 54.6% RMS 68.2% CMS 6.9% Exhibit 4 shows that the number of upgrades decreased significantly in 2007. For the past 4 years the number of CDO downgrades has been rising with 11 downgrades in the CDO sector and three downgrades in the AS sector in 2007. There were only 7 upgrades in 2007, five among AS and two among CDOs. Exhibit 4 : Number of Upgrades and Dow ngrades by Year of Rating Change in the Asia-Pacific Structured Finance Sector 30 Downgrades Upgrades 20 10 0-10 -20-30 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 AS CDO CMS RMS The 2002, 2006 and 2007 vintages contributed 2 upgrades each to total positive rating actions for the year and the 2005 vintage contributed one (Exhibit 5). Downgrades were dominated by the 2005 vintage primarily because 8 of the 11 CDO downgrades involved transactions that closed in 2005; the remaining three downgraded CDOs were from the 2004 vintage. All three AS downgrades involved a single AS deal from the 2006 vintage. 4 March 2008 Special Comment Moody s Credit Policy
Exhibit 5 : Distribution of Upgrades and Dow ngrades in 2007 by Vintage Exhibit 5A: Dow ngrades (14) Exhibit 5 : Upgrades (7) 2006 21.4% 2004 21.4% 2007 28.6% 2002 28.6% 2005 57.1% 2006 28.6% 2005 14.3% Within the AS sector, downgrades in 2007 involved a transaction backed by small-ticket equipment leases and upgrades were all in the Other AS category. All CDO rating transitions in 2007 involved synthetic arbitrage deals, with all but one of the affected deals being static transactions. One repackaged security and one structured note was upgraded in 2007 due to the upgrade of a related entity. Australia is the country of collateral origin for the vast majority of AS, CMS, and RMS, mostly due to the large number of residential mortgages securitized in Australia. It is noteworthy that the liquidity crisis did have some effect on Australia s RMS market. Australia accounts for 94% of the RMS market share in this region. In 2007, total term issuance in Australia was AUD57.4 billion, down 19% from the record AUD70 billion seen in 2006. Moreover, the average deal size in H2 2006 was AUD306 million, a 63% reduction from H2 2006 and a 77% decline from H1 2007 5. Korea was the second largest player among AS, RMS, and CMS with a 5% share of outstanding ratings, mostly concentrated among RMS, credit card AS, and auto AS. Singapore and Hong Kong both captured 4% of the non-cdo market share 6. Structured finance transactions from Singapore are mainly in the CMS sector, while those of Hong Kong are mostly in the RMS and Other AS sectors. 5 See 2007 Review and 2008 Outlook: Australian Structured Finance: 2007 A Year of Two Halves; Smaller, More Frequent Issuance Expected in 2008, Moody s International Structured Finance Special Report, February 2008. 6 See 2007 First Half Review and Second Half Outlook: Structured Finance in South Asia: Singapore and Malaysia on Growth Track; RMS Potential in Thailand and Indonesia, Moody s International Structured Finance Special report, September 2007. 5 March 2008 Special Comment Moody s Credit Policy
Exhibit 6: Number of Upgrades and Downgrades in 2007 by Asset Class and Collateral Origin Rating Changes for the 12-Month Cohort Ending 12/31/2007 y Asset Class Ratings Outstanding on 1/1/2007 Upgrades Downgrades Asia-Pacific AS 94 5 3 Auto Loans and Leases 14 Credit Cards 9 Equipment Lease/Receivables 10 3 Other AS 61 5 Asia-Pacific CDOs 80 2 11 alance Sheet Synthetic 35 Synthetic Arbitrage Managed 22 3 Synthetic Arbitrage Static 12 2 8 Other CDOs 11 Asia-Pacific CMS 48 Asia-Paciific RMS 476 Asia-Pacific Repacks and Structured Notes 7 10 2 AS, CMS and RMS by Collateral Origin Ratings Outstanding on 1/1/2007 Upgrades Downgrades Australia 523 3 Korea 34 3 Singapore 24 Hong Kong 23 Others 14 2 Analysis of Rating Transition Trends The Asia-Pacific (ex-japan) region experienced 14 downgrades and 7 upgrades in 2007. CDOs accounted for 11 of the 14 downgrades (61%) and 2 of the 7 upgrades (28.6%). The AS sector was responsible for the remaining rating changes in 2007 as RMS and CMS experienced none. The downgrades were largely due to corporate rating downgrades that affected the credit quality of the underlying CDO portfolios and the poor collateral performance of one Australian small-ticket equipment lease deal. Most of the AS upgrades were caused by upgrades of third-party credit enhancers, which were upgraded due to refinements in Moody s bank rating methodology. Key rating transition trends in the overall Asia-Pacific structured finance sector (See Exhibit 7): The downgrade rate increased slightly to 2% in 2007 compared to 1.8% in 2006. At the same time, the upgrade rate dropped significantly to 0.7%, lower than both its level in 2006 of 4.7% and the historical average of 2.1%. The spike in the upgrade rate last year was caused largely by upgrades in RMS, due to a change to a higher rated third party credit enhancer. The average number of notches upgraded and downgraded was roughly equal in 2007 at around 1.6 notches and below their historical levels of 2.0 and 1.9 notches, respectively. 7 Repackaged securities and structured notes are excluded from the rest of the statistics reported in the study. Please see the description of the data sample in the Appendix for further information. 6 March 2008 Special Comment Moody s Credit Policy
The downgrades of 3 tranches from one deal in the CDO sector caused a sharp increase in the fallen angel rate in 2007. Those tranches were initially rated A3 and were finally downgraded to a1. As has been the case for the past 2.5 years, there were no Aaa downgrades in 2007. Securities originally rated Aaa have experienced an extremely high stability rate of 99.6%. Other investment-grade rating buckets have seen higher proportions of upgrades than downgrades, with Aarated securities experiencing the largest number of upgrades at 55. Tranches originally rated a have seen equal numbers of positive and negative rating changes at 2 each. One downgrade has occurred in the single- rating category. Exhibit 7 : Asia-Pacific Structured Finance 12-Month Rating Transition Trends Exhibit 7A: Upgrade and Dow ngrade Rates Exhibit 7: Average Number of Notches Upgraded or Downgraded 7% 6% 5% 4% 3% 2% 1% 0% 6.0 5.0 4.0 3.0 2.0 1.0 0.0 Dec-97 Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-97 Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Cohort End Month Cohort End Month Upgrade Rate Dow ngrade Rate Upgraded Dow ngraded 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% Dec-97 Exhibit 7C: Fallen Angel Rates and Aaa Dow ngrade Rate s Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Cohort End Month Fallen Angel Rate Aaa Dow ngrade Rate 100% 80% 60% 40% 20% 0% Exhibit 7D: Cumulative Upgrade and Dow ngrade Rates by Original Rating Aaa Aa A aa a Vintage Unchanged Upgraded Dow ngraded 7 March 2008 Special Comment Moody s Credit Policy
Exhibit 7E: Summary of Rating Transition Trends 2007 2006 1998-2007 1998-2006 Downgrade Rate 2.01% 1.79% 1.49% 1.32% Upgrade Rate 0.72% 4.72% 2.14% 2.28% Downgrade/Upgrade Ratio 2.80 0.38 0.70 0.58 Downgrade Rate (Notch Weighted) 3.30% 1.95% 2.84% 2.77% Upgrade Rate (Notch Weighted) 1.15% 8.13% 4.36% 4.37% Downgrade/Upgrade Ratio (Notch Weighted) 2.88 0.24 0.65 0.63 Rating Drift (Notch Weighted) -2.15% 6.18% 1.52% 1.60% Rating Volatility (Notch Weighted) 4.44% 10.08% 7.21% 7.15% Stability Rate 97.28% 93.50% 96.37% 96.39% Average Number of Notches Downgraded 1.64 1.09 1.90 2.10 Average Number of Notches Upgraded 1.60 1.72 2.04 1.92 Exhibit 7F: Asia-Pacific Structured Finance 12-Month Rating Transition Matrix in 2007 and Averaged Over 1990-2007 Asia-Pacific Structured Finance in 2007 Aaa Aa A aa a Aaa 100.0% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Aa 0.00% 99.48% 0.52% 0.00% 0.00% 0.00% 0.00% A 0.00% 1.67% 95.00% 3.33% 0.00% 0.00% 0.00% aa 0.00% 0.00% 2.56% 89.74% 7.69% 0.00% 0.00% a 0.00% 0.00% 0.00% 0.00% 94.74% 5.26% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 80.00% 20.00% Asia-Pacific Structured Finance: 1990-2007 average Aaa Aa A aa a Aaa 99.87% 0.11% 0.02% 0.00% 0.00% 0.00% 0.00% Aa 3.90% 95.05% 1.05% 0.00% 0.00% 0.00% 0.00% A 1.98% 0.59% 93.35% 3.72% 0.35% 0.00% 0.00% aa 0.00% 0.66% 3.40% 91.98% 3.62% 0.33% 0.00% a 0.00% 0.00% 1.83% 1.83% 91.59% 3.82% 0.92% 0.00% 0.00% 0.00% 0.00% 0.00% 78.89% 21.11% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 100.00% 8 March 2008 Special Comment Moody s Credit Policy
Sector Specific Analysis of Rating Transitions AS There were 3 downgrades and 5 upgrades among Asia-Pacific AS in 2007. The 3 downgrades involved a single Australian small-ticket equipment lease-backed deal, Mobius ELR-01 Trust, and were caused by significant deterioration in pool performance. Four of the five upgrades were related to refinements in Moody s rating methodology, which resulted in upgrades for several banks (e.g. Korean Development ank and AN AMRO) and consequently, to the entities that they support. The remaining upgrade reflected the natural migration of the rating as the deal seasoned due to the nature of a partial credit guarantee in the deal. Key rating transition trends for the Asia-Pacific AS sector include (see Exhibit 8): The downgrade rate rose to 3.2% in 2007 from 0% the previous year. The upgrade rate also increased to 4.3% from the year-prior level of 2.7%. The average number of notches downgraded was higher at 2.3 notches in 2007 compared to the 1.1 notches observed historically. In contrast, the average number of notches upgraded in 2007 was 1.8, below its historical level of 2.7 notches. There have been no securities that were rated investment grade and then downgraded into the speculative-grade category within a 12-month time frame. As a result, the fallen-angel rate has been zero the entire study period. The sector has seen only 2 Aaa downgrades; these occurred in December 1998 as a result of the downgrade of US AG, which provided support to these securities, from Aaa to Aa1. As mentioned above, securities originally rated Aaa have experienced only 2 downgrades, leading to a stability rate of 96.7% for this rating category. Tranches originally rated Aa and single-a have seen the largest number of upgrades (9 and 8, respectively) and no downgrades at all. In comparison, the aa rating bucket has experienced the largest number of downgrades (4) and the a and single- rating categories have seen 1 downgrade each. 9 March 2008 Special Comment Moody s Credit Policy
Exhibit 8 : Asia-Pacific AS 12-Month Rating Transition Trends 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Exhibit 8A: Upgrade and Dow ngrade Rates Dec-97 Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Cohort End Month Upgrade Rate Dow ngrade Rate Dec-07 6.0 5.0 4.0 3.0 2.0 1.0 0.0 Dec-97 Exhibit 8: Average Number of Notches Upgraded or Downgraded Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Cohort End Month Upgraded Dow ngraded Dec-06 Dec-07 Exhibit 8C: Fallen Angel Rates and Aaa Dow ngrade Rate s 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% Dec-97 Dec-99 Dec-01 Fallen Angel Rate Dec-03 Cohort End Month Dec-05 Dec-07 Aaa Dow ngrade Rate 100% 80% 60% 40% 20% 0% Exhibit 8D: Cumulative Upgrade and Dow ngrade Rates by Original Rating Aaa Aa A aa a Vintage Unchanged Upgraded Dow ngraded Exhibit 8E: Summary of AS Rating Transition Trends 2007 2006 1998-2007 1998-2006 Downgrade Rate 3.19% 0.00% 1.68% 2.12% Upgrade Rate 4.26% 2.70% 4.75% 5.48% Downgrade/Upgrade Ratio 0.75 0.00 0.35 0.39 Downgrade Rate (Notch Weighted) 7.45% 0.00% 1.78% 2.12% Upgrade Rate (Notch Weighted) 7.45% 6.76% 12.82% 15.51% Downgrade/Upgrade Ratio (Notch Weighted) 1.00 0.00 0.14 0.14 Rating Drift (Notch Weighted) 0.00% 6.76% 11.04% 13.38% Rating Volatility (Notch Weighted) 14.89% 6.76% 14.60% 17.63% Stability Rate 92.55% 97.30% 93.57% 92.40% Average Number of Notches Downgraded 2.33 NA 1.06 1.00 Average Number of Notches Upgraded 1.75 2.50 2.70 2.83 10 March 2008 Special Comment Moody s Credit Policy
CDO For the CDO sector in 2007, 11 ratings from 4 deals were lowered and 2 ratings from two deals were raised. The CPDO notes issued by Aphex Pacific Capital Limited were upgraded as a result of a cash-in event due to an increase in the net asset value of the deal and restructuring of the deal. The upgrade of the Series 24 Secured Floating Rate Notes issued by Omega Capital Europe plc was prompted by changes to the reference portfolio. All the downgrades affected synthetic arbitrage (managed and static) CDOs and were due to deterioration in the reference portfolio s credit quality. For example, Castle Finance I Ltd was downgraded again in 2007, following the leveraged buyout of Sabre, while last year it was downgraded as a result of VNU s downgrade 8. The Optimum CDO Series 2005-1 and 2005-2 Notes were downgraded following the downgrade of Ford Motor Company and Cooper Tire & Rubber Company. Sun Funding Limited was also downgraded for similar reasons. Key rating transition trends for the Asia-Pacific CDO sector include (see Exhibit 9): The downgrade rate dropped from 20% in 2006 to 13.8% in 2007, while the upgrade rate moved up from 0% in 2006 to 1.25% in 2007. The average number of notches downgraded increased to 1.5 notches compared to 1.1 notches in 2006. The average number of notches upgraded was 1.0 in 2007, below its historical level of 1.5 notches. There have been no Aaa downgrades in the Asia-Pacific CDO sector. Fallen angels have also been rare. The 3 most recent fallen angels emerged from Sun Funding Limited, which had three tranches that were originally rated A3 and eventually downgraded to a1. y original rating, upgrades have been concentrated in investment-grade securities, with the Aa and single-a rating buckets experiencing two upgrades a piece and the aa rating bucket twice that number. Only tranches rated Aa or single-a have experienced negative rating changes, with 6 and 9 downgrades respectively. 8 See Moody s Special Comment, Asia-Pacific (ex-japan) Structured Finance Rating Transitions: 1990-2006, February 2007. 11 March 2008 Special Comment Moody s Credit Policy
Exhibit 9 : Asia-Pacific CDO 12-Month Rating Transition Trends Exhibit 9A: Upgrade and Dow ngrade Rates 60% 50% 40% 30% 20% 10% 0% Dec-97 Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Cohort End Month Upgrade Rate Dow ngrade Rate 6.0 5.0 4.0 3.0 2.0 1.0 0.0 Dec-97 Exhibit 9: Average Number of Notches Upgraded or Downgraded Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Cohort End Month Upgraded Dow ngraded Dec-06 Dec-07 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% Dec-97 Exhibit 9C: Fallen Angel Rates and Aaa Dow ngrade Rate s Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Cohort End Month Fallen Angel Rate Aaa Dow ngrade Rate 100% 80% 60% 40% 20% 0% Exhibit 9D: Cumulative Upgrade and Dow ngrade Rates by Original Rating Aaa Aa A aa a Vintage Unchanged Upgraded Dow ngraded Exhibit 9E: Summary of CDO Rating Transition Trends 2007 2006 1998-2007 1998-2006 Downgrade Rate 13.75% 20.00% 10.29% 6.14% Upgrade Rate 1.25% 0.00% 2.53% 3.19% Downgrade/Upgrade Ratio 11.00 NA 4.07 1.92 Downgrade Rate (Notch Weighted) 20.00% 21.82% 16.40% 10.97% Upgrade Rate (Notch Weighted) 1.25% 0.00% 3.77% 4.83% Downgrade/Upgrade Ratio (Notch Weighted) 16.00 NA 4.35 2.27 Rating Drift (Notch Weighted) -18.75% -21.82% -12.63% -6.14% Rating Volatility (Notch Weighted) 21.25% 21.82% 20.17% 15.80% Stability Rate 85.00% 80.00% 87.19% 90.68% Average Number of Notches Downgraded 1.45 1.09 1.59 1.79 Average Number of Notches Upgraded 1.00 NA 1.49 1.52 12 March 2008 Special Comment Moody s Credit Policy
CMS For the third straight year in a row, the Asia-Pacific CMS sector remained quiet and experienced no rating changes in 2007. Historically, only 2 deals have seen any rating changes in this sector. The downgrades were associated with Commercial Securitization Plaza Limited (closed in 2000), which experienced multiple downgrades. However, eventually all tranches were paid in full in 2005. The upgrades were related to Harbour City Funding Limited (closed in 1999) which saw robust deal performance in spite of the pressure brought on by the Asian financial crisis. Key rating transition trends for the Asia-Pacific CMS sector include (see Exhibit 10): The downgrade rate and upgrade rate were both at 0%, well below their historical levels of 6.6% and 2.5%, respectively. y original rating, every rating bucket from Aaa to a has seen downgrades, although most have experienced only one. Tranches originally rated Aa and single-a have experienced 5 and 2 upgrades, respectively. Exhibit 10 : Asia-Pacific CMS 12-Month Rating Transition Trends 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Exhibit 10A: Upgrade and Dow ngrade Rates Dec-97 Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Cohort End Month Upgrade Rate Dow ngrade Rate Dec-07 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 Dec-97 Exhibit 10: Average Number of Notches Upgraded or Downgraded Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Cohort End Month Upgraded Dow ngraded Dec-06 Dec-07 Exhibit 10C: Fallen Angel Rates and Aaa Dow ngrade Rate s 18.0% 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% Dec-97 Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Cohort End Month Fallen Angel Rate Aaa Dow ngrade Rate 100% 80% 60% 40% 20% 0% Exhibit 10D: Cumulative Upgrade and Dow ngrade Rates by Original Rating Aaa Aa A aa a Vintage Unchanged Upgraded Dow ngraded 13 March 2008 Special Comment Moody s Credit Policy
Exhibit 10E: Summary of CMS Rating Transition Trends 2007 2006 1998-2007 1998-2006 Downgrade Rate 0.00% 0.00% 6.64% 8.02% Upgrade Rate 0.00% 0.00% 2.49% 3.01% Downgrade/Upgrade Ratio NA NA 2.67 2.67 Downgrade Rate (Notch Weighted) 0.00% 0.00% 18.48% 22.33% Upgrade Rate (Notch Weighted) 0.00% 0.00% 2.49% 3.01% Downgrade/Upgrade Ratio (Notch Weighted) NA NA 7.43 7.43 Rating Drift (Notch Weighted) 0.00% 0.00% -16.00% -19.32% Rating Volatility (Notch Weighted) 0.00% 0.00% 20.97% 25.33% Stability Rate 100.00% 100.00% 90.88% 88.98% Average Number of Notches Downgraded NA NA 2.79 2.79 Average Number of Notches Upgraded NA NA 1.00 1.00 RMS There have been no downgrades among Asia-Pacific RMS so far and 2007 was no exception. The upgrade rate was 0% in 2007 as well, compared to 1.6% historically. In the past, RMS deals have seen upgrades due to strong collateral performance, high prepayment rates, and a change to a higher-rated mortgage insurer. Key rating transition trends for the Asia-Pacific RMS sector include (see Exhibit 11): oth the frequency of upgrades and downgrades were at 0% this year, indicating much more stable rating performance compared to the 0.7% upgrade rate and 4.7% downgrade rate for US RMS. y original rating, upgrades have been seen across almost the entire capital structure from the Aa to a rating buckets, with Aa-rated securities experiencing the largest number of upgrades. 14 March 2008 Special Comment Moody s Credit Policy
Exhibit 11 : Asia-Pacific RMS 12-Month Rating Transition Trends Exhibit 11A: Upgrade and Dow ngrade Rates Exhibit 11: Average Number of Notches Upgraded or Downgraded 7% 6% 5% 4% 3% 2% 1% 0% 4.0 3.0 2.0 1.0 0.0 Dec-97 Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-97 Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Cohort End Month Cohort End Month Upgrade Rate Dow ngrade Rate Upgraded Dow ngraded 100.0% Exhibit 11C: Fallen Angel Rates and Aaa Dow ngrade Rate s 100% Exhibit 11D: Cumulative Upgrade and Dow ngrade Rates by Original Rating 80.0% 60.0% 40.0% 20.0% 80% 60% 40% 0.0% 20% Dec-97 Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 0% Aaa Aa A aa a Cohort End Month Vintage Fallen Angel Rate Aaa Dow ngrade Rate Unchanged Upgraded Dow ngraded Exhibit 11E: Summary of RMS Rating Transition Trends 2007 2006 1998-2007 1998-2006 Downgrade Rate 0.00% 0.00% 0.00% 0.00% Upgrade Rate 0.00% 5.93% 1.63% 1.61% Downgrade/Upgrade Ratio NA 0.00 0.00 0.00 Downgrade Rate (Notch Weighted) 0.00% 0.00% 0.00% 0.00% Upgrade Rate (Notch Weighted) 0.00% 9.89% 3.20% 2.69% Downgrade/Upgrade Ratio (Notch Weighted) NA 0.00 0.00 0.00 Rating Drift (Notch Weighted) 0.00% 9.89% 3.20% 2.69% Rating Volatility (Notch Weighted) 0.00% 9.89% 3.20% 2.69% Stability Rate 100.00% 94.07% 98.37% 98.39% Average Number of Notches Downgraded NA NA NA NA Average Number of Notches Upgraded NA 1.67 1.96 1.67 15 March 2008 Special Comment Moody s Credit Policy
Appendix I: Description of Data Sample and Glossary The data sample used in this report includes all public, 144A, and private tranches with a publishable Moody s longterm global debt rating among global asset-backed securities (AS), commercial and residential mortgage-backed securities (CMS and RMS), collateralized debt obligations (CDOs), and other structured finance, including asset backed commercial paper (ACP), structured investment vehicles (SIVs), structured covered bonds, catastrophe bonds, and derivative product companies. Provisional ratings, credit estimates or evaluations, short-term ratings, and national scale ratings are not included. In addition, the following types of securities are excluded from the definition of global structured finance and are analyzed separately in the report: repackaged securities, structured notes, and other credit derivatives which are basically pass-throughs of the rating of another entity. This data set is an expansion of the data set that was used in prior annual structured finance transition studies. Unlike the data set from previous years, this data sample: Includes tranches wrapped by financial guarantors, government agencies, and government sponsored enterprises (GSEs); Includes interest-only (IO) and residual tranches; Includes some transactions outside of the four major sectors (AS, CDO, CMS, RMS) of structured finance, such as ACP, SIVs, structured covered bonds, catastrophe bonds and derivative product companies; Does not collapse tranches with the same rating from the same deal, i.e. all pari-passu tranches are counted in the data sample. The exceptions to this are notes with the same rating issued out of the same program for ACP, SIVs and structured covered bonds, in which case only the rating of the program and not each individual security is counted. The corporate data set used to compare corporate rating transitions to structured finance rating transitions includes international corporate and sovereign issuers, but excludes US municipal ratings. The data used to create this report are commercially available via Moody's Structured Finance Default Risk service and Moody s Corporate Default Risk service. For more information, please email DefaultResearch@moodys.com. Glossary road Ratings and Refined Ratings road ratings refer to the following Moody s long-term bond rating categories: Aaa, Aa, A, aa, a,, and Caa and below. Refined ratings or ratings with numeric modifiers refer to Aaa, Aa1, Aa2, Aa3, A1, A2, A3, aa1, aa2, aa3, a1, a2, a3, 1, 2, 3, Caa1, Caa2, Caa3, Ca, and C. The broad rating category includes the following refined ratings: Caa1, Caa2, Caa3, Ca, and C. Investment-Grade (IG) and elow Investment-Grade (IG)/Speculative- Grade (SG) Ratings Investment-grade ratings refer to Aaa, Aa1, Aa2, Aa3, A1, A2, A3, aa1, aa2, and aa3. elow investmentgrade or speculative-grade ratings refer to a1, a2, a3, 1, 2, 3, Caa1, Caa2, Caa3, Ca, and C. Downgrade (Upgrade) Rate A security is considered to have been downgraded (upgraded) if its rating at the end of a pre-specified time period is lower (higher) than at the beginning of the time period on the basis of ratings with numeric modifiers (also known as refined ratings or modified ratings). The downgrade rate is the number of securities downgraded (or upgraded) divided by the total number of outstanding securities at the beginning of the time period. Note that in measuring downgrade rates and upgrade rates, only ratings at the beginning and the end of the time period are considered. However, if a rating was withdrawn by the end of the time period, then the rating prior to withdrawal is used as the end rating. Note that a security will only be counted if it was outstanding as of the cohort formation date. 16 March 2008 Special Comment Moody s Credit Policy
Average Number of Total Notches Downgraded (Upgraded) per 12-month Cohort The number of total notches downgraded (upgraded) per 12-month cohort for a downgraded (upgraded) security is the difference in the rating of that security at the beginning and end of a 12-month period based on refined ratings. This term is also referred to as the magnitude, size, or severity of the rating change. The average number of total notches downgraded (upgraded) per 12-month cohort averages this quantity for all downgraded (upgraded) securities over the 12-month period. A security can experience multiple rating actions during a 12-month period, and therefore, this measure is different from the average number of notches changed per rating action. For example, if a security is downgraded from aa1 to aa2 and then aa2 to aa3 over 12 months, then the average number of notches changed per rating action would be one, but the average number of total notches changed per 12-month cohort would be two. Weighted Downgrade (Upgrade) Rate The weighted downgrade (upgrade) rate is computed as the number of securities downgraded (upgraded), weighted by the number of total notches changed per downgrade (upgrade) per year, divided by the total number of outstanding securities at the beginning of the 12-month period. For example, a security downgraded from aa1 to 1 over 12 months is counted as three downgrades in the calculation of a weighted downgrade rate, but counted as only one downgrade in the calculation of the unweighted downgrade rate. Fallen Angel Rate A fallen angel is a security that was downgraded from an investment-grade rating to a below investment-grade rating. The fallen angel rate is the number of such securities over a 12-month period divided by the total number of investment grade securities outstanding at the beginning of the 12-month period. Note that a security will only be counted if it was outstanding as of the cohort formation date. Cumulative Downgrade (Upgrade) Rate A security is considered to have experienced a cumulative or lifetime downgrade (upgrade), if its rating before withdrawal or rating at the end of the study period is lower (higher) than its original rating. The cumulative downgrade (upgrade) rate for a particular group of securities is computed as the number of securities to experience a cumulative downgrade (upgrade) divided by the total number of securities in the group Downgrade-to-Upgrade Ratio (weighted) The downgrade-to-upgrade ratio is calculated as the total number of downgraded ratings divided by the total number of upgraded ratings. The weighted downgrade-to-upgrade ratio is the number of downgraded ratings, weighted by the number of notches changed, divided by the number of upgraded ratings, weighted by the number of notches changed. Rating Drift The rating drift is defined as the weighted upgrade rate minus the weighted downgrade rate. Rating Volatility The rating volatility is defined as the weighted upgrade rate plus the weighted downgrade rate. Rating Stability Rate The rating stability rate is a measure of the proportion of ratings that were unchanged over a pre-specified time period. It is calculated as one minus the sum of the downgrade rate and upgrade rate. 17 March 2008 Special Comment Moody s Credit Policy
AS AS stand for asset-backed securities. This structured finance sector includes securities backed by home equity loans (HEL) and both traditional asset types such as auto loans, credit card receivables, student loans, and manufactured housing loans, and non-traditional asset types such as mutual fund fees, tax liens, tobacco settlement payments, and intellectual property. HEL The home equity loan or HEL sector includes securities backed by subprime (&C) mortgage loans, home improvement loans, high loan-to-value (high LTV) loans, home equity lines of credit (HELOCs), and closed-end second-lien loans, as well as net interest margin (NIM) securitizations. It does not include securities backed by Alt- A mortgages, which are included in the RMS sector. HEL is part of the AS sector. Prior to 1998, RMS collateral was generally defined as first-lien residential mortgages, regardless of the credit quality of the borrower. HEL collateral generally included junior liens such as HELOCs or closed-end seconds. However, as subprime lending became more prevalent, the market shifted its definition such that HEL encompassed subprime first-lien residential mortgages while RMS included first-lien mortgages made to higher quality borrowers. Since 1998, a deal classified as RMS by Moody's is generally backed by prime or Alt-A quality first-lien residential mortgages, while a deal classified as HEL is generally backed by subprime first-lien mortgages or junior liens. Therefore, a subprime deal which would be classified as HEL today may have been classified as RMS in the past. CDOs CDOs stand for collateralized debt obligations. Derivative securities such as structured notes and repackaged securities are not considered to be part of this sector. Commercial real estate (CRE) CDOs, where 70% or more of the collateral is comprised of CRE loans, are classified as CMS. If the collateral backing the transaction contains less than 70% CRE loans, then the deal is classified as a CDO. CMS CMS stand for commercial mortgage-backed securities. Commercial real estate (CRE) CDOs, where 70% or more of the collateral is comprised of CRE loans, are classified as CMS. If the collateral backing the transaction contains less than 70% CRE loans, then the deal is classified as a CDO. RMS RMS stand for residential mortgage-backed securities. The vast majority of these securities are backed by firstlien prime mortgages or by Alt-A mortgages. For further details, see the definition of HEL. Other Structured Finance Other structured finance consists of structured finance securities not categorized in the four major sectors (AS, CDO, CMS, and RMS) including asset-backed commercial paper (ACP) programs, structured investment vehicles (SIVs), structured covered bonds, insurance-linked securities such as catastrophe bonds, and derivative product companies. However, notes carrying only short-term ratings such as commercial paper are excluded. Global Structured Finance Global structured finance captures securities issued around the world in the four major sectors - AS, CDO, CMS, and RMS and in the other structured finance category. For further details, see the definition of Other Structured Finance. US Structured Finance US structured finance securities are denominated in US dollars and issued in the US market or denominated in Canadian dollars and issued in Canada. In cases where the source of the underlying collateral and the denomination of the securities cross multiple countries/regions, deals are classified by the location at which they are monitored. 18 March 2008 Special Comment Moody s Credit Policy
Asia-Pacific/Asia-Pacific (ex-japan) Structured Finance Asia-Pacific (ex-japan) structured finance securities are denominated in the currency of a country in the Asia- Pacific region or issued in an Asia-Pacific country, excluding Japan, but including Australia. In cases where the source of the underlying collateral and the denomination of the securities cross multiple countries/regions, deals are classified by the location at which they are monitored. The terms Asia-Pacific and Asia-Pacific (ex-japan) are used interchangeably in this report. Derivatives The derivatives sector contains structured notes, repackaged securities, and other credit derivatives which are basically pass-throughs of the rating of another entity. 19 March 2008 Special Comment Moody s Credit Policy
Appendix II: Methodology Computation of Rating Transition Statistics Rating transition statistics can be reported by cohort rating or by original rating. For statistics calculated by cohort rating, every month the rating migrations of all outstanding securities are tracked over a pre-specified time period regardless of when the security was issued. For statistics calculated by original rating, every month the rating migration of all securities issued in that month are tracked over a pre-specified time period, in which case each security carries its original rating at the start of the period. Unless otherwise stated, transition statistics in the report are calculated by cohort rating and usually the prespecified time period is one year, although multi-year statistics are also reported. In any case, the rating (including WR) must exist over the entire time period in order to be counted, e.g. a rating must be seasoned at least three years to be counted in a three-year downgrade rate, and only the rating outstanding at the beginning and end of the time period are used. All average transition statistics (downgrade rates, upgrade rates, transition matrices, etc.) are calculated by averaging over the rates calculated on a monthly basis, where each month s contribution to the total is weighted by the number of ratings used in that month s computation. For example, the average 12-month downgrade rate over 1998 to 2007 is calculated by taking a weighted average of the 12-month downgrade rates of all cohorts in that 10- year period, starting from the cohort ending December 1998 and ending with the cohort ending December 2007. Counting Downgrades and Upgrades Within the main body of the report, a downgrade (upgrade) of a security is counted if its rating at the end of a prespecified time period or immediately prior to withdrawal, if the rating had been withdrawn during the time period, is lower (higher) than at the beginning of the time period. 9 Note that, if a security is downgraded (upgraded) multiple times over the period under consideration, this will still be counted as one downgrade (upgrade). Moreover, if a tranche is downgraded and then upgraded (or upgraded and then downgraded) so that its start rating and end rating are the same, then no rating change will be considered as having occurred and neither the downgrade nor the upgrade will be counted. When reporting the absolute number of downgrades (upgrades), all rating changes that occurred during the year under the above definition are counted, regardless of when the rating was issued. In contrast, transition statistics by cohort rating only consider changes to ratings that were outstanding as of the cohort formation date. In particular, if a security was issued in 2007 and downgraded in the same year, then it would not be counted in the 12-month downgrade rate by cohort rating for 2007 because it had not been outstanding as of 1/1/07. This is true of both the transition statistics presented in the main body of the text and the transition matrices in Appendix III. In addition, the rating transition matrices in Appendix III show the migration to WR rather than the rating just prior to withdrawal. For those who are interested in rating changes prior to withdrawal, some information is provided in the bottom-most transition matrix for the 5-year transition matrices by original rating in Appendix III. elow is an excerpt from the transition matrix for withdrawn securities for the 5-yr cohort by original rating for global structured finance. The universe of securities under consideration in this row are those that were originally rated Aa, seasoned at least 5 years, and had WR ratings 5 years after issuance. For these tranches, 71.64% were still rated Aa immediately before withdrawal, 21.48% had been upgraded to Aaa, 3.52% had been downgraded to single-a, 1.84% had been downgraded to aa, etc.. Sample Row from a Transition Matrix of Ratings prior to WR Rating before WR Original Rating Aaa Aa A aa a Aa 21.48% 71.64% 3.52% 1.84% 0.27% 0.22% 1.03% 9 This differs from how withdrawals were treated in previous transition studies when rating changes prior to WR were not counted. In the structured finance transition studies published between 2005 and 2007, half the withdrawn ratings were deducted from the population, and in 2003 and 2004, all withdrawn ratings were deducted from the population. 20 March 2008 Special Comment Moody s Credit Policy
Appendix III: Multi-Year Horizon Transition Matrices Matrices by Cohort Rating Exhibit 12: Asia-Pacific (ex-japan) Structured Finance Rating Transition Matrices by Cohort Rating (CDOs included, 1990-2007) 1-year Aaa Aa A aa a WR Aaa 99.87% 0.11% 0.02% 0.00% 0.00% 0.00% 0.00% 0.00% Aa 3.90% 95.05% 1.05% 0.00% 0.00% 0.00% 0.00% 0.00% A 1.98% 0.59% 93.35% 3.72% 0.35% 0.00% 0.00% 0.00% aa 0.00% 0.66% 3.40% 91.98% 3.62% 0.33% 0.00% 0.00% a 0.00% 0.00% 1.83% 1.83% 91.59% 3.82% 0.92% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 78.89% 21.11% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 100.00% 0.00% 2-year Aaa Aa A aa a WR Aaa 74.32% 0.14% 0.09% 0.00% 0.00% 0.00% 0.00% 25.45% Aa 4.91% 73.14% 0.90% 0.26% 0.26% 0.00% 0.00% 20.53% A 2.62% 0.86% 54.79% 3.27% 1.83% 0.22% 0.00% 36.42% aa 0.00% 0.76% 5.64% 64.05% 2.20% 1.24% 0.41% 25.70% a 0.00% 0.00% 4.93% 2.26% 43.53% 2.46% 4.93% 41.89% 0.00% 0.00% 0.00% 0.00% 0.00% 30.51% 28.81% 40.68% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 9.62% 90.38% 3-year Aaa Aa A aa a WR Aaa 63.37% 0.14% 0.14% 0.00% 0.00% 0.00% 0.00% 36.36% Aa 4.37% 58.17% 0.00% 0.07% 1.20% 0.00% 0.00% 36.20% A 1.57% 0.64% 40.24% 0.78% 1.61% 0.83% 0.00% 54.33% aa 0.00% 0.00% 4.83% 53.56% 0.00% 0.51% 1.53% 39.58% a 0.00% 0.00% 7.18% 0.00% 22.13% 0.00% 6.90% 63.79% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 15.15% 84.85% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 100.00% 4-year Aaa Aa A aa a WR Aaa 53.45% 0.15% 0.09% 0.00% 0.00% 0.00% 0.00% 46.31% Aa 3.98% 39.67% 0.00% 0.00% 1.24% 0.00% 0.00% 55.11% A 1.48% 0.12% 30.56% 0.31% 0.00% 0.74% 0.00% 66.79% aa 0.00% 0.00% 2.19% 46.24% 0.00% 0.00% 1.25% 50.31% a 0.00% 0.00% 9.48% 0.00% 9.48% 0.00% 5.17% 75.86% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 100.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 100.00% 5-year Aaa Aa A aa a WR Aaa 44.20% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 55.80% Aa 3.02% 28.47% 0.00% 0.00% 0.00% 0.00% 0.00% 68.51% A 0.99% 0.00% 26.05% 0.00% 0.00% 0.00% 0.00% 72.95% aa 0.00% 0.00% 0.13% 39.84% 0.00% 0.00% 0.00% 60.03% a 0.00% 0.00% 7.75% 0.00% 0.00% 0.00% 0.00% 92.25% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 100.00% 21 March 2008 Special Comment Moody s Credit Policy
Exhibit 13: Asia-Pacific (ex-japan) Structured Finance Rating Transition Matrices by Cohort Rating (CDOs excluded, 1990-2007) 1-year Aaa Aa A aa a WR Aaa 99.86% 0.11% 0.02% 0.00% 0.00% 0.00% 0.00% 0.00% Aa 4.10% 95.41% 0.50% 0.00% 0.00% 0.00% 0.00% 0.00% A 2.46% 0.49% 95.22% 1.37% 0.46% 0.00% 0.00% 0.00% aa 0.00% 0.88% 2.34% 94.16% 2.19% 0.44% 0.00% 0.00% a 0.00% 0.00% 2.37% 2.37% 89.13% 4.94% 1.19% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 78.41% 21.59% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 100.00% 0.00% 2-year Aaa Aa A aa a WR Aaa 75.06% 0.14% 0.09% 0.00% 0.00% 0.00% 0.00% 24.71% Aa 5.11% 74.70% 0.46% 0.29% 0.29% 0.00% 0.00% 19.15% A 3.23% 0.77% 59.62% 1.18% 1.36% 0.27% 0.00% 33.56% aa 0.00% 0.95% 3.81% 66.03% 1.47% 1.56% 0.52% 25.65% a 0.00% 0.00% 6.19% 2.84% 41.75% 3.09% 6.19% 39.95% 0.00% 0.00% 0.00% 0.00% 0.00% 30.51% 28.81% 40.68% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 9.62% 90.38% 3-year Aaa Aa A aa a WR Aaa 64.37% 0.14% 0.14% 0.00% 0.00% 0.00% 0.00% 35.34% Aa 4.82% 59.73% 0.00% 0.07% 1.32% 0.00% 0.00% 34.06% A 1.84% 0.80% 45.32% 0.98% 0.63% 1.03% 0.00% 49.40% aa 0.00% 0.00% 4.01% 55.76% 0.00% 0.63% 1.90% 37.70% a 0.00% 0.00% 9.47% 0.00% 20.83% 0.00% 9.09% 60.61% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 15.15% 84.85% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 100.00% 4-year Aaa Aa A aa a WR Aaa 54.49% 0.16% 0.09% 0.00% 0.00% 0.00% 0.00% 45.26% Aa 4.37% 41.38% 0.00% 0.00% 1.36% 0.00% 0.00% 52.89% A 1.66% 0.15% 35.95% 0.38% 0.00% 0.90% 0.00% 60.96% aa 0.00% 0.00% 1.79% 50.96% 0.00% 0.00% 1.53% 45.72% a 0.00% 0.00% 14.38% 0.00% 7.84% 0.00% 7.84% 69.93% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 100.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 100.00% 5-year Aaa Aa A aa a WR Aaa 45.14% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 54.86% Aa 3.20% 30.05% 0.00% 0.00% 0.00% 0.00% 0.00% 66.74% A 1.00% 0.00% 31.41% 0.00% 0.00% 0.00% 0.00% 67.60% aa 0.00% 0.00% 0.16% 45.88% 0.00% 0.00% 0.00% 53.97% a 0.00% 0.00% 14.08% 0.00% 0.00% 0.00% 0.00% 85.92% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 100.00% 22 March 2008 Special Comment Moody s Credit Policy
Exhibit 14: Asia-Pacific (ex-japan) AS Rating Transition Matrices by Cohort Rating (1997-2007) 1-year Aaa Aa A aa a WR Aaa 98.79% 1.21% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Aa 5.55% 94.45% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% A 9.11% 0.17% 88.66% 2.06% 0.00% 0.00% 0.00% 0.00% aa 0.00% 0.00% 4.36% 95.64% 0.00% 0.00% 0.00% 0.00% a 0.00% 0.00% 19.35% 0.00% 79.03% 1.61% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 80.00% 20.00% 0.00% 2-year Aaa Aa A aa a WR Aaa 59.08% 1.58% 0.00% 0.00% 0.00% 0.00% 0.00% 39.34% Aa 6.66% 63.00% 0.00% 0.00% 0.00% 0.00% 0.00% 30.34% A 13.92% 0.00% 57.08% 4.41% 0.00% 0.00% 0.00% 24.59% aa 0.00% 0.00% 7.12% 56.99% 0.00% 0.00% 0.00% 35.88% a 0.00% 0.00% 53.33% 0.00% 46.67% 0.00% 0.00% 0.00% 3-year Aaa Aa A aa a WR Aaa 47.59% 2.00% 0.00% 0.00% 0.00% 0.00% 0.00% 50.41% Aa 5.26% 46.32% 0.00% 0.00% 0.00% 0.00% 0.00% 48.42% A 10.60% 0.00% 45.36% 5.63% 0.00% 0.00% 0.00% 38.41% aa 0.00% 0.00% 7.38% 36.62% 0.00% 0.00% 0.00% 56.00% a 0.00% 0.00% 73.53% 0.00% 26.47% 0.00% 0.00% 0.00% 4-year Aaa Aa A aa a WR Aaa 38.17% 2.44% 0.00% 0.00% 0.00% 0.00% 0.00% 59.39% Aa 4.33% 26.80% 0.00% 0.00% 0.00% 0.00% 0.00% 68.87% A 12.87% 0.00% 39.77% 2.92% 0.00% 0.00% 0.00% 44.44% aa 0.00% 0.00% 4.53% 23.77% 0.00% 0.00% 0.00% 71.70% a 0.00% 0.00% 100.00% 0.00% 0.00% 0.00% 0.00% 0.00% 5-year Aaa Aa A aa a WR Aaa 30.60% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 69.40% Aa 6.47% 11.97% 0.00% 0.00% 0.00% 0.00% 0.00% 81.55% A 14.93% 0.00% 35.82% 0.00% 0.00% 0.00% 0.00% 49.25% aa 0.00% 0.00% 0.47% 8.02% 0.00% 0.00% 0.00% 91.51% a 0.00% 0.00% 100.00% 0.00% 0.00% 0.00% 0.00% 0.00% 23 March 2008 Special Comment Moody s Credit Policy
Exhibit 15: Asia-Pacific (ex-japan) CDO Rating Transition Matrices by Cohort Rating (1998-2007) 1-year Aaa Aa A aa a WR Aaa 100.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Aa 1.97% 91.48% 6.56% 0.00% 0.00% 0.00% 0.00% 0.00% A 0.27% 0.94% 86.73% 12.06% 0.00% 0.00% 0.00% 0.00% aa 0.00% 0.00% 6.65% 85.37% 7.98% 0.00% 0.00% 0.00% a 0.00% 0.00% 0.00% 0.00% 100.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 100.00% 0.00% 0.00% 2-year Aaa Aa A aa a WR Aaa 52.63% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 47.37% Aa 2.90% 57.49% 5.31% 0.00% 0.00% 0.00% 0.00% 34.30% A 0.34% 1.19% 36.73% 11.05% 3.57% 0.00% 0.00% 47.11% aa 0.00% 0.00% 12.62% 56.48% 4.98% 0.00% 0.00% 25.91% a 0.00% 0.00% 0.00% 0.00% 50.51% 0.00% 0.00% 49.49% 3-year Aaa Aa A aa a WR Aaa 36.10% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 63.90% Aa 0.00% 43.06% 0.00% 0.00% 0.00% 0.00% 0.00% 56.94% A 0.46% 0.00% 19.72% 0.00% 5.57% 0.00% 0.00% 74.25% aa 0.00% 0.00% 8.15% 44.64% 0.00% 0.00% 0.00% 47.21% a 0.00% 0.00% 0.00% 0.00% 26.19% 0.00% 0.00% 73.81% 4-year Aaa Aa A aa a WR Aaa 26.03% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 73.97% Aa 0.00% 22.09% 0.00% 0.00% 0.00% 0.00% 0.00% 77.91% A 0.68% 0.00% 6.42% 0.00% 0.00% 0.00% 0.00% 92.91% aa 0.00% 0.00% 4.00% 25.14% 0.00% 0.00% 0.00% 70.86% a 0.00% 0.00% 0.00% 0.00% 12.66% 0.00% 0.00% 87.34% 5-year Aaa Aa A aa a WR Aaa 18.67% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 81.33% Aa 0.00% 1.33% 0.00% 0.00% 0.00% 0.00% 0.00% 98.67% A 0.97% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 99.03% aa 0.00% 0.00% 0.00% 1.00% 0.00% 0.00% 0.00% 99.00% a 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 100.00% 24 March 2008 Special Comment Moody s Credit Policy