DBRS Confirms MAVI Class A-2 and MAVII Class A-2 Notes

DBRS has today confirmed the ratings of the Master Asset Vehicle I (MAVI) Class A-2 Notes at “A” and the Master Asset Vehicle II (MAVII, and together with MAVI, the MAVs) Class A-2 Notes (the MAVI Class A-2 Notes, together with the MAVII Class A-2 Notes, the A-2 Notes) at BBB (low). Today’s actions remove the ratings from Under Review with Negative Implications, where they were placed on August 11, 2009. The ratings assigned to the MAVI Class A-1 Notes and the MAVII Class A-1 Notes are unaffected by this action.

When the A-2 Notes were placed Under Review with Negative Implications on August 11, 2009, DBRS noted that negative rating migration in the underlying asset interests held by the MAVs, particularly in collateralized debt obligation (CDO) transactions with relatively low levels of credit enhancement, had increased the required enhancement for the A-2 Notes. In a November 12, 2009, press release maintaining the A-2 Notes Under Review with Negative Implications, DBRS cited the continued exposure of the MAVs to numerous underlying assets with volatile credit characteristics, including monoline insurers and non-investment-grade names.

On January 25, 2010, DBRS published a commentary entitled “The Montréal Accord: One Year Later.” The commentary explained the time decay concept applicable to CDO asset interests, whereby CDOs grow less risky as their maturity date draws nearer. Today’s confirmation and the removal of the ratings from under review is a reflection of the impact of time decay combined with the relatively stable credit environment of recent months.

However, notwithstanding today’s rating action, the A-2 Notes continue to be exposed to numerous volatile credits and after July 16, 2010, will become exposed to the risk of facing a margin call.

As detailed in the January 25, 2010, commentary, eight of the 20 most referenced entities to which the MAVs are exposed are currently rated below investment grade. The MAVs are also exposed to ten monoline insurers. Further significant credit deterioration of reference entities and/or future credit events could, depending on both timing and recovery rates, result in negative rating action being taken with respect to the A-2 Notes.

On July 16, 2010, a moratorium period on collateral calls agreed to by all current credit default swap counterparties to the MAVs will expire. After this date, certain asset interests held by the MAVs will be exposed to spread-loss collateralization triggers. Credit default swap spreads, upon which the spread-loss collateralization triggers are based, can be volatile, and a re-tracing to spread levels equal to or wider than those observed at the peak of the financial crisis, absent the protection of the moratorium, could result in negative rating action being taken.

Notes:
The applicable methodologies are Rating Canadian Structured Credit Transactions and Canadian Structured Credit Surveillance, which can be found on our website under Methodologies.

This is a Structured Finance rating.