USD 424 million of debt securities affected
New York, September 08, 2010 -- Moody's Investors Service announced today that it has downgraded notes
issued by Trapeza CDO X, Ltd. The notes affected by today's
rating action are as follows:
U.S. $268,000,000 Class A-1 (current
balance of $249,663,961.59), Downgraded
to B1 (sf); previously on March 27, 2009 Downgraded to Ba3
U.S. $69,000,000 Class A-2 (current
balance of $69,000,000), Downgraded to Caa3 (sf);
previously on March 27, 2009 Downgraded to B3 (sf);
U.S. $31,000,000 Class B (current balance
of $31,218,375.37), Downgraded to C (sf);
previously on March 27, 2009 Downgraded to Ca (sf);
U.S. $21,000,000 Class C-1 (current
balance of $22,186,534.54), Downgraded
to C (sf); previously on March 27, 2009 Downgraded to Ca (sf);
U.S. $35,000,000 Class C-2 (current
balance of $40,014,170.66), Downgraded
to C (sf); previously on March 27, 2009 Downgraded to Ca (sf).
Trapeza CDO X, Ltd. is a collateral debt obligation backed
by a portfolio of Bank, Insurance and REIT trust preferred securities
(the 'TRUP CDO') and it was issued in June, 15,
According to Moody's, the rating downgrade action on the notes
today is the result of a significant increase in the defaults and deferrals
on the trust preferred securities held in the portfolio and the deterioration
of the overall credit quality of the remaining portfolio. Such
negative performance has been observed through numerous factors,
including a decline in the average credit rating of the portfolio (as
measured by an increase in the weighted average rating factor) and an
increase in the assumed amount of defaults. Since the last rating
action on March 27, 2009, the Weighted Average Rating Factor
(WARF) has increased by 122 from 2133 (March 27, 2009) to 2255 (September
3, 2010). Additionally, there were approximately $53.62
million of additional assumed defaults in this transaction.
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 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 July 31, 2010, the Class
A, Class B, Class C and Class D overcollateralization ratios
were reported at 115.432%, 105.132%,
89.263% and 79.322%, respectively,
versus previous levels of 134.85%, 123.16%,
106.06% and 95.27%, respectively at
the time of last rating actions.
The credit deterioration in these portfolios is a reflection of the continued
distress in some part of the banking sector as the number of bank failures
and interest deferrals of trust preferred securities issued by regional
and community banks continued to increase. According to FDIC data,
118 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 negative while insurance and REIT are stabilizing with the exception
to commercial P&C insurance and healthcare and lodging REITs which
Moody's notes that the cumulative assumed defaults in this transaction
now total $184.17 million or 37.66% of the
portfolio, $53.62 million of which have occurred since
the previous rating action. All the assumed defaulted assets are
carried at zero recovery in our analysis. The remaining performing
assets in the portfolio have also suffered credit deterioration.
76% of the portfolio are bank TruPS with an estimated rating of
Ba1 (sf) or below, as determined using FDIC Q1-2010 financial
data in conjunction with Moody's RiskCalc model. 0.70%
of the remaining portfolio are insurance TruPS with an estimated rating
of Ba2 (sf) or below by Moody's Insurance team using insurance companies
reported financial data. Finally, 23.3% of
the remaining performing assets in the portfolio are REIT TruPS with an
estimated rating of B3 (sf) or below by Moody's REIT team using
REIT companies reported financial data.
Given the current market conditions, we have assumed in our cash-flow
modeling analysis that there are no amortizations and the WAL of the portfolio
is around 26 years. Our cash-flow modeling analysis are
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).
The portfolios of these CDOs are mainly composed of trust preferred securities
issued by small to medium sized U.S. community bank,
insurance companies and REITs 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 may
vary 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 bank 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, using 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. Moody's also incorporated information
provided by the manager in the latest investor report to account for more
recent information on the performance of the underlying obligors.
Moody's performed a number of sensitivity analyses on some of the key
factors driving the ratings. The sensitivity analysis includes
further increase and decrease 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 Class
A1 when WARF was increased by 445 and a one-notch upward movement
when the WARF was decreased by 255. In addition, a decrease
of 1% in the WAC or 0.5% in the WAS of the collateral
pool resulted in one notch downward movement on the Class A1 notes.
In addition, to the quantitative factors that are explicitly modeled,
qualitative factors are part of rating committee considerations.
These qualitative factors include, among other elements, an
assessment of the collateral manager track record and practices.
In particular, Moody's looked at the quality of information
provided by the manager, its interpretation of the documentation
and level of diligence in the implementation of the transaction criteria.
Moody's considers as well the structural protections in each transaction,
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 decision.
The principal methodologies used in rating Trapeza CDO X, Ltd.
were "Moody's Approach to Rating U.S. Bank Trust Preferred
Security CDOs" published in June 2010, "Moody's Approach to
Rating Insurance Trust Preferred Security CDOs" published in June
2010, "Moody's Approach to Rating U.S. REIT CDOs"
published in April 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
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
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.2.6,
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.
CDOROM v.2.6 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 Trapeza CDO X, Ltd.
250 Greenwich Street
New York, NY 10007