Moody's also affirms the ratings of $102.2 million of notes
New York, September 11, 2014 -- Moody's Investors Service has confirmed the ratings on the following notes
issued by Trapeza CDO V, Ltd.:
U.S. $33,000,000 Class B Third Priority
Senior Secured Floating Rate Notes Due 2034, Confirmed A1 (sf);
previously on June 26, 2014 A1 (sf) Placed Under Review for Possible
Upgrade
U.S. $25,000,000 Class C-1 Fourth
Priority Senior Secured Floating Rate Notes Due 2034 (current balance
of $29,336,668.05), Confirmed Caa2 (sf);
previously on June 26, 2014 Caa2 (sf) Placed Under Review for Possible
Upgrade
U.S. $41,000,000 Class C-2 Fourth
Priority Senior Secured Fixed/Floating Rate Notes Due 2034 (current balance
of $48,197,184.71), Confirmed Caa2 (sf);
previously on June 26, 2014 Caa2 (sf) Placed Under Review for Possible
Upgrade
Moody's also affirmed the ratings on the following notes:
U.S. $120,000,000 Class A1A First Priority
Senior Secured Floating Rate Notes Due 2034 (current balance of $40,130,032.05),
Affirmed Aaa (sf); previously on April 11, 2014 Upgraded to
Aaa (sf)
U.S. $50,000,000 Class A1B Second Priority
Senior Secured Floating Rate Notes Due 2034, Affirmed Aa2 (sf);
previously on April 11, 2014 Upgraded to Aa2 (sf)
U.S. $13,000,000 Class D Mezzanine Secured
Floating Rate Notes Due 2034 (current balance of $12,095,086.63),
Affirmed Caa3 (sf); previously on April 11, 2014 Upgraded to
Caa3 (sf)
Trapeza CDO V, Ltd. issued in December 2003, is a collateralized
debt obligation backed by a portfolio of bank trust preferred securities
(TruPS).
RATINGS RATIONALE
Today's rating actions primarily reflect slight deleveraging of
the senior notes and an increase in the transaction's overcollateralization
ratios since April 2014 as well as updates to Moody's TruPS CDO methodology,
offset by a slight deterioration in credit quality and a correction to
Moody's modeling of the default timing profiles. As such,
the expected losses on the notes are still commensurate with their current
rating levels.
The Class A1A has paid down by $1,388,142, or
3.3% since April 2014 through the diversion of excess interest
proceeds. Based on the trustee's August 2014 report,
the Class A/B over-collateralization ratio was 153.36%
(limit 141.75%), versus 147.72% in March
2014, and that of the Class C/D overcollateralization ratio was
88.73% (limit 102.0%), versus 85.89%
in March 2014. The actions also reflect updates to Moody's
TruPS CDO methodology described in "Moody's Approach to Rating
TruPS CDOs" published in June 2014. These updates include:
(1) removing the 25% macro default probability stress for bank
and insurance TruPS; (2) expanding the default timing profiles from
one to six probability-weighted scenarios; (3) incorporating
a redemption profile for bank and insurance TruPS; (4) using a loss
distribution generated by Moody's CDOROM™ for deals that do not
permit reinvestment; and (5) giving full par credit to deferring
bank TruPS that meet certain criteria and (6) raising the assumed recovery
rate for insurance TruPS.
Nonetheless, the credit quality of the underlying portfolio has
deteriorated slightly. Based on Moody's calculations,
the weighted average rating factor (WARF) deteriorated to 814.
Today's rating actions also reflect a correction to Moody's modeling of
the default timing profiles. Moody's modeled incorrect default
timing profiles in its April 2014 rating action. This error has
now been corrected, and today's rating actions reflect this change.
In taking the foregoing actions, Moody's also announced that it
had concluded its review of its ratings on the issuer's Class B,
C-1 and C-2 notes announced on June 26, 2014.
At that time, Moody's had placed the ratings on review for
upgrade as a result of the aforementioned methodology updates.
The key model inputs Moody's used in its analysis, such as
par, weighted average rating factor, and weighted average
recovery rate, are based on its methodology and could differ from
the trustee's reported numbers. In its base case, Moody's
analyzed the underlying collateral pool has having a performing par of
$193.7 million, defaulted par of $50 million,
a weighted average default probability of 9.03% (implying
a WARF of 814), and a weighted average recovery rate upon default
of 10%. In addition to the quantitative factors Moody's
explicitly models, qualitative factors are part of rating committee
considerations. Moody's considers the structural protections in
the transaction, the risk of an event of default, recent deal
performance under current market conditions, the legal environment
and specific documentation features. All information available
to rating committees, including macroeconomic forecasts, inputs
from other Moody's analytical groups, market factors, and
judgments regarding the nature and severity of credit stress on the transactions,
can influence the final rating decision.
Methodology Underlying the Rating Action
The principal methodology used in this rating was "Moody's Approach to
Rating TRuPS CDOs," published in June 2014. Please see the
Credit Policy page on www.moodys.com for a copy of this
methodology.
Factors that Would Lead to an Upgrade or Downgrade of the Rating:
This transaction is subject to a number of factors and circumstances that
could lead to either an upgrade or downgrade of the ratings, as
described below:
1) Macroeconomic uncertainty: TruPS CDOs performance could be negatively
affected by uncertainty about credit conditions in the general economy.
Moody's has a stable outlook on the US banking sector.
2) Portfolio credit risk: Credit performance of the assets collateralizing
the transaction that is better than Moody's current expectations
could have a positive impact on the transaction's performance.
Conversely, asset credit performance weaker than Moody's current
expectations could have adverse consequences on the transaction's
performance.
3) Deleveraging: One source of uncertainty in this transaction is
whether deleveraging from unscheduled principal proceeds and excess interest
proceeds will continue and at what pace. Note repayments that are
faster than Moody's current expectations could have a positive impact
on the notes' ratings, beginning with the notes with the highest
payment priority.
4) Resumption of interest payments by deferring assets: A number
of banks have resumed making interest payments on their TruPS.
The timing and amount of deferral cures could have significant positive
impact on the transaction's over-collateralization ratios and the
ratings on the notes.
5) Exposure to non-publicly rated assets: The deal contains
a large number of securities whose default probability Moody's assesses
through credit scores derived using RiskCalc™ or credit estimates.
Because these are not public ratings, they are subject to additional
estimation uncertainty..
Loss and Cash Flow Analysis:
Moody's applied a Monte Carlo simulation framework in Moody's
CDOROM™ v.2.13.1 to model the loss distribution
for TruPS CDOs. The simulated defaults and recoveries for each
of the Monte Carlo scenarios defined the reference pool's loss distribution.
Moody's then used the loss distribution as an input in its CDOEdge™
cash flow model. CDOROM™ v. 2.13.1 is
available on www.moodys.com under Products and Solutions
-- Analytical models, upon receipt of a signed free
license agreement.
The portfolio of this CDO contains TruPS issued by small to medium sized
U.S. community banks that Moody's does not rate publicly.
To evaluate the credit quality of bank TruPS that do not have public ratings,
Moody's uses RiskCalc™, an econometric model developed by
Moody's Analytics, to derive credit scores. Moody's evaluation
of the credit risk of most of the bank obligors in the pool relies on
FDIC Q1-2014 financial data.
In addition to the base case analysis, Moody's also conducted sensitivity
analyses to test the impact of a number of default probabilities on the
rated notes relative to the base case modeling results, which may
be different from the current public ratings of the notes. Below
is a summary of the impact of different default probabilities (expressed
in terms of WARF) on all of the rated notes (by the difference in the
number of notches versus the current model output, for which a positive
difference corresponds to lower expected loss):
Assuming a two-notch upgrade to assets with below-investment
grade ratings or rating estimates (WARF of 570)
Class A1A: 0
Class A1B: 0
Class B: +1
Class C-1: +2
Class C-2: +2
Class D: 0
Assuming a two-notch downgrade to assets with below-investment
grade ratings or rating estimates (WARF of 1212)
Class A1A: -1
Class A1B: -1
Class B: 0
Class C-1: -1
Class C-2: -1
Class D: -1
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions of the disclosure form.
Moody's did not receive or take into account a third-party
assessment on the due diligence performed regarding the underlying assets
or financial instruments related to the monitoring of this transaction
in the past six months.
Moody's describes its loss and cash flow analysis in the section
"Ratings Rationale" of this press release.
As the section on loss and cash flow analysis describes, Moody's
quantitative analysis entails an evaluation of scenarios that stress factors
contributing to sensitivity of ratings and take into account the likelihood
of severe collateral losses or impaired cash flows. Moody's
weights the impact on the rated instruments based on its assumptions of
the likelihood of the events in such scenarios occurring.
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides certain regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this rating action, and
whose ratings may change as a result of this rating action, the
associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Suzanna Sava
Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Min Xu
VP - Sr Credit Officer/Manager
Structured Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's confirms the ratings on $110.5 million of TruPS CDO notes issued by Trapeza CDO V, Ltd.
