The rating agency downgraded notes issued by the Eurosail Prime 2007 trust, 5NP 2007 trust, 4BL 2007 trust and the EMF 2008 trust.
It said the potential additional costs Lehmans might incur when entering into replacement swaps or the risk associated with unhedged interest rate and foreign currency exposure arising if no replacement swaps are entered into forced Moody’s to downgrade.
It also said the operational risk associated with the servicing and cash management currently performed by Capstone Mortgage Services added to the concerns.
Moody’s had placed all the securities on review for possible downgrade when Lehman Brothers went into bankruptcy, but has now had to downgrade notes, which are currently fully exposed to interest rate risk, basis risk and
foreign exchange risk until a replacement swap counterparty is found