USD 283.2 million of debt securities affected
New York, November 03, 2010 -- Moody's Investors Service announced today that it has downgraded five
classes of notes issued by U.S. Capital Funding V,
U.S. $193,000,000 Class A-1 Floating
Rate Senior Notes Due 2040 (current balance of $150,857,756),
Downgraded to B3 (sf); previously on March 27, 2009 Downgraded
to Ba1 (sf);
U.S. $30,000,000 Class A-2 Floating
Rate Senior Notes Due 2040, Downgraded to Caa3 (sf); previously
on March 27, 2009 Downgraded to Ba3 (sf);
U.S. $42,000,000 Class A-3 Floating
Rate Senior Notes Due 2040, Downgraded to Ca (sf); previously
on March 27, 2009 Downgraded to B2 (sf);
U.S. $48,000,000 Class B-1 Deferrable
Floating Rate Senior Subordinate Notes Due 2040 (current balance of $49,341,848),
Downgraded to C (sf); previously on March 27, 2009 Downgraded
to Caa3 (sf);
U.S. $10,000,000 Class B-2 Deferrable
Fixed/Floating Rate Senior Subordinate Notes Due 2040 (current balance
of $11,021,005), Downgraded to C (sf); previously
on March 27, 2009 Downgraded to Caa3 (sf).
U.S. Capital Funding V, Ltd., issued
on October 3, 2006, is a collateral debt obligation backed
by a portfolio of bank trust preferred securities and senior secured corporate
loans (the 'TRUP CDO'). The last rating action for this transaction
was on March 27, 2009. At that time, Moody's downgraded
five 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 actions on the notes are primarily the
result of an increase in the assumed defaulted amount of the pool.
The defaults increased by $103.50M since the last rating
action on March 27, 2009. Moody's assumed default amount
currently totals $148.97 million (45.6% of
the portfolio) and are almost exclusively comprised of bank trust preferred
assets. All of the assumed defaulted assets are carried at zero
recovery in our analysis. The remaining assets in the portfolio
have shown a slight improvement, as indicated by a WARF decrease
to 2496, from 2608 as of the last rating action date. This
current WARF 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, 63.8%
of the portfolio is estimated to be Ba1 or below, as determined
by using both the FDIC Q1-2010 financial data in conjunction with
Moody's RiskCalc model to assess non-publicly rated bank trust
preferred securities and public ratings and credit estimates to assess
the middle market loans.
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,
resulting in a diversion of excess spreads to pay down senior notes.
As of the latest trustee report dated October 5, 2010, the
Senior Principal Coverage Test is 86.4%, the Senior
Subordinate Principal Coverage Test is 68.08%, and
the Mezzanine Principal Coverage Test is 63.98%, versus
trustee reported levels from the report dated January 6, 2009 of
125.21%, 102.46%, and 97.28%
respectively, which were used during the last rating action.
In our analysis, we assume that there are no prepayments and the
assets amortize at their final maturity. The weighted average life
of the portfolio is approximately 18.8 years.
The credit deterioration exhibited by TRUP CDO portfolios is a reflection
of the continued pressure in the banking sector as the number of bank
failures and interest deferrals of bank trust preferred securities has
continued to increase. According to FDIC data, a total of
307 banks have failed to date since the onset of the current economic
crisis in 2007; 258 have failed since the date of the last rating
action. In Moody's opinion, the banking sector outlook continues
to remain negative.
This portfolio is composed mainly of trust preferred securities issued
by small to medium sized U.S. community bank that are generally
not publicly rated by Moody's. To evaluate their credit quality,
Moody's derives credit scores for these non-publicly rated trust
preferred securities. Moody's evaluation of these assets
relies on financial data received for a majority of obligors in the pool
as of Q1-2010.
The 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.
Many of the loans corporate loans used defaults probabilities that were
assessed through credit estimates ("CE"). Moody's
applied additional default probability stresses on these estimates 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 that were 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 senior secured
corporate loan estimates account for approximately 12.8%
of the performing collateral balance.
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 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 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 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 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 20 points from the base case of 2496, 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 475 points, expected losses are one notch better than the base
case results. Additionally, the effects of higher and lower
Moody's Asset Correlation (MAC) resulted in the following:
Increasing the MAC by 9 percentage points yielded an expected loss that
was one notch worse than the base case for Class A-1. Similarly,
decreasing the MAC by 10 percentage points from the base case resulted
in an expected loss that was not enough to move the rating by one notch
from the base case for 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 this were "Moody's Approach
to Rating U.S. Bank Trust Preferred Security CDOs" published
in June 2010, "Updated Approach to the Usage of Credit Estimates
in Rated Transactions" published in October 2009, and "Moody's Approach
to Rating Collateralized Loan Obligations" published in August 2009.
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
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
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.
In addition, Moody's publishes a weekly summary of structured finance
credit, ratings and methodologies, available to all registered
users of our website, 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 U.S. Capital Funding V, Ltd.
250 Greenwich Street
New York, NY 10007