USD 315.9 million of debt securities affected
New York, October 22, 2010 -- Moody's Investors Service announced today that it has downgraded notes
issued by Preferred Term Securities XXVIII, Ltd.
U.S. $191,000,000 Floating Rate Class
A-1 Senior Notes due March 22, 2038 (current balance of $183,574,684.81),
Downgraded to Baa3 (sf); previously on March 27, 2009 Downgraded
to A3 (sf);
U.S.$45,700,000 Floating Rate Class A-2
Senior Notes due March 22, 2038 (current balance of $44,433,245.50),
Downgraded to Ba2 (sf); previously on March 27, 2009 Downgraded
to Ba1 (sf);
U.S. $44,400,000 Floating Rate Class
B Mezzanine Notes due March 22, 2038 (current balance of $43,389,545.81),
Downgraded to Ca (sf); previously on March 27, 2009 Downgraded
to Caa1 (sf);
U.S. $36,000,000 Floating Rate Class
C-1 Mezzanine Notes due March 22, 2038 (current balance of
$36,045,575.18), Downgraded to C (sf);
previously on March 27, 2009 Downgraded to Ca (sf);
U.S. $8,000,000 Fixed/Floating Rate Class
C-2 Mezzanine Notes due March 22, 2038 (current balance of
$8,435,838.98), Downgraded to C (sf);
previously on March 27, 2009 Downgraded to Ca (sf).
Preferred Term Securities XXVIII, Ltd., issued on November
8, 2007, is a collateral debt obligation backed by a portfolio
of bank and insurance trust preferred securities (the 'TRUP CDO').
On March 27, 2009, Moody's downgraded 5 classes of notes,
which were the 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.
Moody's indicated that the rating actions on the notes are primarily
the result of an increase of the assumed defaulted amount and Weighted
Average Rating Factor (WARF) of the pool. The defaults increased
by $39.5M since the last rating action on March 27,
2009. Cumulative assumed defaults now total $81.5
million (22.5% of the portfolio). All the assumed
defaulted assets are carried at zero recovery in our analysis.
The remaining assets in the portfolio have also suffered credit deterioration,
as indicated by the WARF that increased to 1805 from 1614. This
current WARF also accounts for a credit estimate stress, described
in Moody's Rating Methodology "Updated Approach to the Usage
of Credit Estimates in rated Transactions", October 2009.
Currently, 62.3% of the portfolio is estimated to
be Ba1 or below, as determined both by using FDIC Q1-2010
financial data in conjunction with Moody's RiskCalc model to assess
non-publicly rated bank trust preferred securities and using financial
data for insurance companies from Moody's Insurance Team.
The par loss due to the increase in the assumed defaulted amount has resulted
in loss of overcollateralization for the tranches affected and an increase
of their expected losses since the last rating action. In addition,
the overcollateralization tests continue to breach their triggers which
has resulted in a diversion of excess spreads to pay down senior notes.
As of the latest trustee report dated September 22, 2010,
the Senior Coverage Test is 122.93%, the Class B Mezzanine
Coverage Test is 103.27%, the Class C Mezzanine Coverage
Test is 88.73%, and the Class D Mezzanine Coverage
Test is 81.50%,versus trustee reported levels from
the report dated December 22, 2008 of 147.13%,
123.89%, 107.13%, and 98.91%,
respectively, which were used during the last rating action on March
The credit deterioration exhibited by these portfolios is a reflection
of the continued pressure in the banking sector as the number of bank
failures and interest deferrals of trust preferred securities issued by
banks has continued to increase. According to FDIC data,
a total of 300 banks have failed, to date, since the onset
of the current economic crisis in 2007, 251 of which have failed
since the date of the last rating action. In Moody's opinion,
the banking sector outlook continues to remain negative. With the
exception of commercial P&C insurance which remains negative,
the insurance sector is stabilizing.
In our analysis we assume no prepayments. The WAL of the portfolio
is approximately 27.5 years.
The portfolios of these CDOs are mainly composed of trust preferred securities
issued by small to medium sized U.S. community bank and
insurance companies 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 varies between one and three
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 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, relying on 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 of the results to some
of the key factors driving the ratings.
The sensitivity of the model results to increases and decreases to the
WARF (representing a slight improvement and a slight deterioration of
the credit quality of the collateral pool) was examined. If WARF
is increased by 164 points from the base case of 1805, the model
results in an expected loss that is one notch worse than the result of
the base case for Class A-1. If the WARF is decreased by
175 points, expected losses are one notch better than the base case
results. Additionally, the effects of higher and lower weighted
average spread (WAS) and weighted average coupon (WAC) of the collateral
pool resulted in the following: Increasing the WAS and WAC by 25
basis points yielded an expected loss that was not enough to move the
rating by one notch up from the base case for Class A-1.
Similarly, decreasing the WAS and WAC by the 25 basis points from
the base case resulted in an expected loss that was not enough to move
the rating by one notch down from the base case for Class A-1.
However, if the WAS and WAC are decreased by 50 basis points,
the expected losses yield a rating that is one notch lower than the result
from the base case for the Class A-1.
In addition to the quantitative factors that are explicitly modeled,
qualitative factors are part of rating committee considerations.
Moody's considers as well the structural protections in each transaction,
risk Event of Default (EoD), 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
The principal methodologies used in rating Preferred Term Securities XXVIII,
Ltd. were "Moody's Approach to Rating U.S. Bank Trust
Preferred Security CDOs" published in June 2010, "Moody's Approach
to Rating Insurance 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.
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, according to our
rating approach, using CDOROMTM v.2.6 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. CDOROMTM v.2.6 is available
on moodys.com under Products and Solutions -- Analytical models,
upon return of a signed free license agreement.
Other methodologies and factors that may have been considered in the process
of rating this issue can also be found in the Credit Policy & Methodologies
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.
Structured Finance Group
Moody's Investors Service
Senior Vice President
Structured Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's Downgrades the ratings of TRUP CDO notes issued by Preferred Term Securities XXVIII, Ltd.
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