USD 511 million of debt securities affected
New York, November 03, 2010 -- Moody's Investors Service announced today that it has downgraded notes
issued by U.S. Capital Funding VI, Ltd. The
notes affected by today's rating action are as follows:
U.S. $375,000,000 Class A-1 Floating
Rate Senior Notes Due 2043 (current balance $332,816,670.18),
Downgraded to Caa1 (sf); previously on March 27, 2009 Downgraded
to Ba2 (sf)
U.S. $60,000,000 Class A-2 Floating
Rate Senior Notes Due 2043 (current balance $60,000,000),
Downgraded to Ca (sf); previously on March 27, 2009 Downgraded
to B1 (sf)
U.S. $80,000,000 Class B-1 Deferrable
Floating Rate Senior Subordinate Notes Due 2043 (current balance $82,701,560.4),
Downgraded to C (sf); previously on March 27, 2009 Downgraded
to Caa3 (sf)
U.S. $32,000,000 Class B-2 Deferrable
Fixed/Floating Rate Senior Subordinate Notes Due 2043 (current balance
$35,709,719.55), Downgraded to C (sf);
previously on March 27, 2009 Downgraded to Caa3 (sf)
U.S. Capital Funding VI, Ltd. is a collateral
debt obligation backed by a portfolio of bank trust preferred securities
(the 'TRUP CDO') and senior secured corporate loans, issued on June
28, 2007. On March 27, 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.
Moody's indicated that the rating downgrade actions on the notes today
are the result of a significant increase in the defaults and deferrals
on the trust preferred securities held in the portfolio. Such negative
performance has been observed through an increase of about $152
million of additional assumed defaults since last rating action dated
March 27, 2009. Due to the removal of these additional assumed
defaulted assets from the portfolio, the Weighted Average Rating
Factor (WARF) has improved slightly by 415 from 2738 (March 27,
2009) to 2323 (October 28, 2010).
Moody's notes that the current cumulative assumed defaulted amount in
this transaction reached $250 million or 43% of the portfolio,
$152 million of which have occurred since the last rating action.
All the assumed defaulted assets are carried at zero recovery in our analysis.
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 note valuation report dated October 12,
2010, Senior, Senior Subordinate and Mezzanine Principal Coverage
tests were reported at 94.38% (limit 122.93%),
72.52% (limit 102.69%) and 68.19%
(limit 100.99%), respectively, versus previous
levels of 128.18%, 101.81% and 96.49%,
respectively as reported in January 2009 trustee report.
The credit deterioration in this portfolio is a reflection of the continued
distress in some parts of the banking sector as the number of bank failures
and interest deferrals on trust preferred securities issued by regional
and community banks has continued to increase. According to FDIC
data, additional 258 banks have failed since the last rating action;
139 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
Given the current market conditions, we have assumed in our cash-flow
modeling analysis that there are no amortizations from the bank trust
preferred securities but there are some from the corporate loans so the
WAL of the portfolio is around 19 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).
This portfolio is mainly composed of bank trust preferred securities issued
by small to medium sized U.S. community banks and senior
secured corporate loans that are generally not publicly rated by Moody's.
To evaluate their credit quality, Moody's derives credit scores
for these non-publicly rated bank trust preferred assets.
Moody's evaluation relies on financial data received for a majority of
bank obligors in the pool as of Q1-2010.
Many of the loans issued by middle market issuers used default probabilities
that were assessed through credit estimates. Moody's applied additional
default probability stresses by assuming an equivalent of Caa3 for CEs
that were not updated within the last 15 months, a 1.5 notch-equivalent
assumed downgrade for CEs last updated between 12-15 months ago
and a 0.5 notch-equivalent assumed downgrade for CEs last
updated between 6-12 months ago. Current bank loan credit
estimates account for approximately 33% of the performing collateral
This financial data is used by Moody's to assess the credit quality of
obligors in the pool, uses 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 down 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 evaluates the sensitivity of the rated transactions to the
volatility of the credit estimates, as described in Moody's Rating
Methodology "Updated Approach to the Usage of Credit Estimates in rated
Transactions", October 2009. For each credit score or credit
estimate where the related exposure constitutes more than 3% of
the collateral pool, Moody's applied a 2-notch equivalent
assumed downgrade (but only on the CEs representing in aggregate the largest
30% of the pool) in lieu of the aforementioned stresses.
Notwithstanding the foregoing, in all cases the lowest assumed rating
equivalent is Caa3. The effect of the stress testing of these estimates
may vary between 1 and 3 notches, depending on the total amount
and relative size of these securities in the collateral pool.
Moody's performed a number of sensitivity analyses on some of the key
factors driving the ratings. The sensitivity analysis included
further increases and decreases 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 Senior
Notes when WARF was increased by 577 and a one-notch upward movement
when the WARF was decreased by 223.
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 U.S. Capital
Funding VI, Ltd. were "Moody's Approach to Rating U.S.
Bank Trust Preferred Security CDOs" published in June 2010, "Moody's
Approach to Rating Collateralized Loan Obligations" published in
August 2009 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
v 184.108.40.206. 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
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 U.S. Capital Funding VI, Ltd.
250 Greenwich Street
New York, NY 10007