Approximately USD 215million of debt securities affected
New York, October 28, 2011 -- Moody's Investors Service announced today that it has upgraded the ratings
on the following two notes issued by Alesco Preferred Funding I,
Ltd.
U.S.$149,000,000 Class A-1 First
Priority Senior Secured Floating Rate Notes Due 2033 (current balance
of $85,207,491.81), Upgraded to A2 (sf);
previously on July 13, 2010 Downgraded to Baa2 (sf)
U.S.$66,000,000 Class A-2 Second
Priority Senior Secured Floating Rate Notes Due 2033, Upgraded to
Baa3 (sf); previously on July 13, 2010 Downgraded to Ba2 (sf);
RATINGS RATIONALE
According to Moody's, the rating upgrade actions taken today are
primarily the result of a significant deleveraging of the Class A1 notes
and the improvement on the credit quality of the portfolio. The
deleveraging is due to a significant pay down of the Class A-1,
which has received about $33.7 million since the last rating
action due to Overcollateralization Tests failures. The $33.7
million was a combination of excess interest and underlying assets redemptions.
The credit quality improvement of the portfolio is reflected by a weighted
average rating factor (WARF) decrease to 1136, from 1735,
as of the last rating action date. Moody's also has noticed
a slight decrease in the assumed defaulted amount in the underlying portfolio.
The assumed defaulted amount decreased by $5 million since the
last rating action in July 2010 and it currently comprises $101.5
million or about 37% of the current portfolio. Currently,
78% of the performing portfolio is estimated to be Ba1 or below,
as determined both by using FDIC Q2-2011 financial data in conjunction
with Moody's RiskCalc model to assess non-publicly rated banks.
Moody's has noticed that since the last rating action three assets have
been redeemed at par and the sale proceeds were used to cure the coverage
tests by paying down the Class A1 notes. Moreover, one of
the interest rate swap in this transaction will terminate in 2013 which
will free up additional excess interest proceeds to pay down the notes.
As of the latest trustee report dated September 30, 2011,
the Class A Overcollateralization Test is still failing at 113.85%
(limit 125.00%), and the Class B Overcollateralization
Test is still failing at 66.93% (limit 101.3%),
versus 117.09% and 75.13% respectively,
as reported by the trustee as of July 8, 2010, values that
were used for the last rating action. Moody's also observed
that one deferring asset resumed interest payments and another one is
projected to become current in the near future.
Alesco Preferred Funding I, Ltd., issued on September
25, 2003, is a collateral debt obligation backed by a portfolio
of bank trust preferred securities (the 'TruPS CDO'). On July 13,
2010, the last rating action date, Moody's downgraded four
classes of notes as a result of the deterioration in the credit quality
of the transaction's underlying portfolio.
In Moody's opinion, the banking sector outlook continues to remain
negative although there have been some recent signs of stabilization.
The pace of bank failures in 2011 has declined compared to the two previous
years, and 23 of previously deferring banks have resumed interest
payment on their trust preferred securities.
The portfolio of this CDO is mainly 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 uses RiskCalc model, an econometric
model developed by Moody's KMV, to derive credit scores for these
non-publicly rated bank trust preferred securities. Moody's
evaluation of the credit risk for a majority of bank obligors in the pool
relies on FDIC financial data received as of Q2-2011. Moody's
also evaluates the sensitivity of the rated transactions to the volatility
of the credit scores, as described in Moody's Rating Implementation
Guidance "Updated Approach to the Usage of Credit Estimates in Rated Transactions,"
October 2009.
Moody's performed a number of sensitivity analyses of the results to some
of the key factors driving the ratings including the analysis of a scenario
of how much additional defaults and how much increase in WARF are needed
for the current ratings to still hold. Moody's also examines
the likelihood that a portion of deferring bank TruPS in the portfolio
will resume payments and become current.
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 the 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 methodology used in this rating was "Moody's Approach to
Rating TRUP CDOs" published in May 2011. Please see the Credit
Policy page on www.moodys.com for a copy of this methodology.
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. 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.
Further information on Moody's analysis of this transaction is available
on www.moodys.com.
REGULATORY DISCLOSURES
The Global Scale Credit Ratings on this press release that are issued
by one of Moody's affiliates outside the EU are considered EU Qualified
by Extension and therefore available for regulatory use in the EU.
Further information on the EU endorsement status and on the Moody's
office that has issued a particular Credit Rating is available on www.moodys.com.
For ratings issued on a program, series or category/class of debt,
this announcement provides relevant 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 relevant 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 relevant 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.
Information sources used to prepare the rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, confidential and proprietary Moody's Investors
Service information, and confidential and proprietary Moody's
Analytics information.
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 considers the quality of information available on the rated
entity, obligation or credit satisfactory for the purposes of issuing
a rating.
Please see the ratings disclosure page on www.moodys.com
for general disclosure on potential conflicts of interests.
Please see the ratings disclosure page on www.moodys.com
for information on (A) MCO's major shareholders (above 5%) and
for (B) further information regarding certain affiliations that may exist
between directors of MCO and rated entities as well as (C) the names of
entities that hold ratings from MIS that have also publicly reported to
the SEC an ownership interest in MCO of more than 5%. A
member of the board of directors of this rated entity may also be a member
of the board of directors of a shareholder of Moody's Corporation;
however, Moody's has not independently verified this matter.
Please see Moody's Rating Symbols and Definitions on the Rating Process
page on www.moodys.com for further information on the meaning
of each rating category and the definition of default and recovery.
Please see ratings tab on the issuer/entity page on www.moodys.com
for the last rating action and the rating history.
The date on which some ratings were first released goes back to a time
before Moody's ratings were fully digitized and accurate data may not
be available. Consequently, Moody's 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 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.
Rachid Ouzidane
Asst Vice President - 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
Rodrigo Araya
Senior Vice President
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 upgrades TruPS CDO notes issued by Alesco Preferred Funding I, Ltd.
