Approximately USD 283.8 million of debt securities affected
New York, April 21, 2011 -- Moody's Investors Service announced today that it has downgraded the ratings
on the following notes issued by Regional Diversified Funding 2005-1,
Ltd.
Issuer: Regional Diversified Funding 2005-1, Ltd.
.... U.S. $170,000,000
Class A-1a Floating Rate Senior Notes Due 2036 (Current Balance
$114,262,857), Downgraded to B2 (sf); previously
on Mar 27, 2009 Downgraded to B1 (sf);
.... U.S. $10,000,000
Class A-1b Fixed Rate Senior Notes Due 2036 (Current Balance $6,721,344),
Downgraded to B2 (sf); previously on Mar 27, 2009 Downgraded
to B1 (sf)
.... U.S. $70,000,000
Class A-2 Floating Rate Senior Notes Due 2036, (Current Balance
$70,000,000), Downgraded to Caa3 (sf); previously
on Mar 27, 2009 Downgraded to B3 (sf);
.... U.S. $79,000,000
Class B-1 Floating Rate Senior Subordinate Notes Due 2036 (Current
Balance $81,706,544), Downgraded to C (sf);
previously on Mar 27, 2009 Downgraded to Ca (sf);
.... U.S. $10,000,000
Class B-2 Fixed Rate Senior Subordinate Notes Due 2036 (Current
Balance $11,141,959), Downgraded to C (sf);
previously on Mar 27, 2009 Downgraded to Ca (sf);
RATINGS RATIONALE
According to Moody's, the rating action taken today is primarily
the result of an increase in the assumed defaulted amount in the underlying
portfolio. The assumed defaulted amount increased by $108
million since the last rating action in March 2009. Cumulative
assumed defaults now total $201 million (65% of the current
portfolio). All 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 modeled WARF
decrease to 1449, from 2244 as of the last rating action date.
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. As of the
latest trustee report dated January 19, 2011, the Senior Principal
Coverage Test is 98.6% (limit 125.0%) and
the Senior Subordinate Principal Coverage Test is 66.33%
(limit 104.2%), versus the trustee report levels from
the report dated January 21, 2009 of 130% and 68%
respectively, which were used during the last rating action.
Regional Diversified Funding 2005-1, Ltd., issued
on April 12, 2005, is a collateral debt obligation backed
by a portfolio of bank trust preferred securities (the 'TRUP CDO') and
TRUP CDO tranches. On March 27, 2009, the last rating
action date, Moody's downgraded five 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.
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. In Moody's opinion, the
banking sector outlook continues to remain negative.
The portfolio of this CDO is partly composed of trust preferred securities
issued by small to medium sized U.S. community banks 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.
To evaluate their credit quality, Moody's uses RiskCalc model,
an econometric model developed by Moody's KMV, to derive credit
scores for these non-publicly rated trust preferred securities.
Moody's evaluation of the credit risk for a majority of obligors in the
pool relies on FDIC financial data received as of Q3-2010.
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 changes in 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 300 points from the base
case of 1184, the model results in an expected loss that is one
notch worse than the result of the base for Class A-1 Notes.
If the WARF is decreased by 200 points, expected losses are one
notch better than the base case results.
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,
the risk of triggering an Event of Default, the recent deal performance
in the current market conditions, 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 decision.
The principal methodologies used in rating Regional Diversified Funding
2005-1, Ltd., were "Moody's Approach to Rating
U.S. Bank Trust Preferred Security CDOs" published in June
2010 and "Moody's Approach to Including TRUPS CDO Tranches in ABS CDOs"
published in June 2006.
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 CDOROM v.2.8 to develop the default
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.
CDOROM v.2.8 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 six months.
Further information on Moody's analysis of this transaction is available
on www.moodys.com.
REGULATORY DISCLOSURES
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, public information, and confidential
and proprietary Moody's Investors Service 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.
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.
New York
Rodrigo Araya
Senior Vice President
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Dimitri Kaltsas
Analyst
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's downgrades TRUP CDO notes issued by Regional Diversified Funding 2005-1, Ltd.
