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22 Oct 2010
USD 70 million of debt securities affected
New York, October 22, 2010 -- Moody's Investors Service announced today that it has upgraded notes issued
by Preferred Term Securities XI, Ltd.
U.S.$70,000,000 Floating Rate Class A
2 Senior Notes Due September 24, 2033, Upgraded to Baa3 (sf);
previously on March 27, 2009 Downgraded to Ba1 (sf).
Preferred Term Securities XI, Ltd., issued in September
17, 2003, is a collateral debt obligation backed by a managed
portfolio of bank trust preferred securities (the 'TRUP CDO').
On March 27, 2009, Moody's downgraded 5 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
Moody's indicated that the rating actions on the notes are primarily
the result from the decrease in the Weighted Average Rating Factor (WARF)
of the pool from 1724 (March 27, 2009) to 1376 (September 27,
2010). Although there is continued pressure in the banking sector
with the number of bank failures and interest deferrals of trust preferred
securities issued by banks continuing to increase, the portfolio
of Preferred Term Securities XI, Ltd. has exhibited credit
improvement since the last rating action in March 2009. However,
in Moody's opinion, the banking sector outlook continues to
Cumulative assumed defaults now total $174.28 million (29%
of the portfolio), $91 million of which have occurred since
the previous rating action. All the assumed defaulted assets are
carried at zero recovery in our analysis. However, the increase
in assumed defaulted par was offset by the credit improvement of the remaining
In our analysis we assume no prepayments. The WAL of the portfolio
is approximately 27 years.
The portfolios of these CDOs are mainly composed 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 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 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 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.
Additional sources of uncertainty to the evaluation assumptions result
from continued negative outlook of the underlying collateral portfolio
sectors, especially in the banking industry where we anticipate
more bank closures by the FDIC in 2010 as compared to previous years.
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 XI,
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.
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.2.7 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.2.7 is available
on moodys.com under Products and Solutions -- Analytical models,
upon return of a signed free license agreement.
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.
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 Upgrades the ratings of TRUP CDO note issued by Preferred Term Securities XI, Ltd.
250 Greenwich Street
New York, NY 10007
No Related Data.
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