USD 353 million of debt securities affected
New York, September 27, 2010 -- Moody's Investors Service announced today that it has downgraded notes
issued by MMCAPS Funding XIX, Ltd. The notes affected by
today's rating action are as follows:
U.S. $220,000,000 Class A-1 Floating
Rate Senior Notes Due 2038 (current balance of $214,792,985.33),
Downgraded to Ba2 (sf); previously on 8/18/2009 Downgraded to Ba1
U.S. $26,000,000 Class A-2 Floating
Rate Senior Notes Due 2038, Downgraded to Caa3 (sf); previously
on 8/18/2009 Downgraded to B3 (sf)
U.S. $32,000,000 Class B Floating Rate
Senior Notes Due 2038, Downgraded to Ca (sf); previously on
8/18/2009 Downgraded to Caa3 (sf)
U.S. $79,000,000 Class C Floating Rate
Senior Subordinate Notes Due 2038 (current balance of $80,252,061.53),
Downgraded to C (sf); previously on 8/18/2009 Downgraded to Ca (sf)
MMCAPS Funding XIX, Ltd. is a collateralized debt obligation
backed by a portfolio of bank trust preferred securities (the 'TRUP CDO')
and it was issued on July 12, 2007. According to Moody's,
the rating downgrade action on the notes today is the result of a significant
increase in the defaults and deferrals on the trust preferred securities
("TruPS") held in the portfolio. Such negative performance has
been observed through an increase of $88 million of additional
assumed defaults which offset the slight improvement in the Weighted Average
Rating Factor (WARF).
On August 18, 2009, Moody's downgraded four classes of notes
as a result of the application of revised and updated key modeling assumptions,
as well as the deterioration in the credit quality of the transaction's
underlying portfolio. Since then the Weighted Average Rating Factor
(WARF) has slightly improved by 93 from 1675 (August 18, 2009) to
1582 (September 27, 2010). An Event of Default has been declared
on 7/14/2009 due to non-payment of interest on one of the Senior
Notes. As of today the trustee has not received any indication
either to accelerate cash flows from the underlying performing securities
or liquidate the assets to pay down the notes.
The par loss due to the increase in the assumed defaulted amount has resulted
in loss of overcollateralization for the rated tranches. In addition,
the Principal Coverage tests continue to breach their triggers,
resulting in a diversion of excess spreads to pay down senior notes.
As of the latest trustee report dated July 12, 2010, the Class
A, Class B, Class C and Class D Principal Coverage Tests were
reported at 105.72%, 93.32%, 72.15%
and 66.89%, respectively, versus previous levels
of 140.80%, 124.40%, 96.63%
and 89.73%, respectively at the time of last rating
The credit deterioration in these portfolios is a reflection of the continued
distress in some part of the banking sector as the number of bank failures
and interest deferrals of TruPS issued by regional and community banks
continued to increase. According to FDIC data, 127 U.S.
banks have failed so far this year, while 140 banks failed in 2009,
as compared to 25 in all of 2008. In Moody's opinion, the
banking sector outlook continues to remain negative.
Moody's notes that the cumulative assumed defaults in this transaction
now total $166.6 million or 41.62% of the
portfolio, $88 million of which have occurred since the previous
rating action. All the assumed defaulted assets are carried at
zero recovery in our analysis. The remaining performing assets
in the portfolio have also experienced slight credit improvement.
100% of the portfolio are bank TruPS with an average estimated
rating of Ba3 (sf), as determined using FDIC Q1-2010 financial
data in conjunction with Moody's RiskCalc model.
Given the current market conditions, we have assumed in our cash-flow
modeling analysis that there are no amortizations and the WAL of the portfolio
is around 28 years. Our cash-flow modeling analysis is described
in Moody's Rating Methodology publication titled "Moody's Approach To
Rating U.S. Bank Trust Preferred Security CDOs", June
2010, under Appendix A (page 8).
The portfolios of these CDOs are mainly composed of trust preferred securities
issued by small to medium sized U.S. community banks that
are generally not publicly rated by Moody's. To evaluate their
credit quality, Moody's derives credit scores for these non-publicly
rated assets and evaluates the sensitivity of the rated transactions to
their volatility, as described in Moody's Rating Methodology "Updated
Approach to the Usage of Credit Estimates in rated Transactions",
October 2009. The effect of the stress testing of these credit
scores may vary between 1 and 3 notches, depending on the total
amount and relative size of these securities in the collateral pool.
Moody's evaluation of this transaction relies on financial data received
for a majority of bank obligors in the pool as of Q1_2010. This
financial data is used by Moody's to assess the credit quality of obligors
in the pool, using RiskCalc, an econometric model developed
by Moody's KMV. The results obtained from the RiskCalc model have
been translated to Moody's rating scale and adjusted by one notch where
necessary in order to compensate for the absence of credit indicators
such as rating reviews, outlooks and adjustments factoring in cyclical
developments in the economy.
Moody's performed a number of sensitivity analyses on some of the key
factors driving the ratings. This analysis includes further increase
and decrease to the WARF (representing a slight improvement and a slight
deterioration of the credit quality of the collateral pool) and the results
indicate a one-notch downward movement on Class A1 when WARF was
increased by 218 and a one-notch upward movement when the WARF
was decreased by 182. Further, a decrease of 1% in
the WAC or 0.5% in the WAS of the collateral pool resulted
in one notch downward movement on the Class A1 notes.
In addition, to the quantitative factors that are explicitly modeled,
qualitative factors are parts of rating committee considerations.
These qualitative factors include, among other elements, an
assessment of the collateral manager track record and practices.
In particular, Moody's looked at the quality of information provided
by the manager, its interpretation of the documentation and level
of diligence in the implementation of the transaction criteria.
Moody's considers as well the structural protections in each transaction,
the recent deal performance in the current market environment, the
legal environment, and specific documentation features. All
information available to rating committees, including macroeconomic
forecasts, input from other Moody's analytical groups, market
factors, and judgments regarding the nature and severity of credit
stress on the transactions, may influence the final rating decision.
The principal methodologies used in rating MMCAPS Funding XIX, Ltd.
were "Moody's Approach to Rating U.S. Bank Trust Preferred
Security CDOs" published in June 2010, and "Updated Approach to
the Usage of Credit Estimates in Rated Transactions" published in October
2009. Other methodologies and factors that may have been considered
in the process of rating this issuer can also be found on Moody's website.
Moody's Investors Service did not receive or take into account a third
party due diligence report on the underlying assets or financial instruments
related to the monitoring of this transaction in the past 6 months.
Due to the impact of revised and updated key assumptions referenced in
these rating methodologies, key model inputs used by Moody's in
its analysis, such as par, weighted average rating factor,
Moody's asset correlation, and weighted average recovery rate,
may be different from the trustee's reported numbers. In particular,
rating assumptions for all publicly rated corporate credits in the underlying
portfolio have been adjusted for "Review for Possible Downgrade",
"Review for Possible Upgrade", or "Negative Outlook".
The transaction's portfolio was modeled using CDOROM v.2.7,
according to our rating approach, to develop the loss distribution
from which the Moody's Asset Correlation parameter was obtained.
This parameter was then used as an input in a cash flow model using CDOEdge.
CDOROM v.2.7 is available on moodys.com under Products
and Solutions -- Analytical models, upon return of
a signed free license agreement.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, public information, confidential
and proprietary Moody's Investors Service information, and confidential
and proprietary Moody's Analytics' information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
Further information on Moody's analysis of this transaction is available
on www.moodys.com. In addition, Moody's publishes
a weekly summary of structured finance credit, ratings and methodologies,
available to all registered users of our web site, at www.moodys.com/SFQuickCheck.
MOODY'S adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
MOODY'S considers to be reliable including, when appropriate,
independent third-party sources. However, MOODY'S
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Asst Vice President - Analyst
Structured Finance Group
Moody's Investors Service
MD - Structured Finance
Structured Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's Downgrades the ratings of TRUP CDO notes issued by MMCAPS Funding XIX, Ltd.
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New York, NY 10007