Approximately USD 72.6 million of debt securities affected
New York, September 24, 2012 -- Moody's Investors Service announced today that it has upgraded the rating
on the following notes issued by Tropic CDO I Ltd.:
U.S. $90,000,000 Class A-2L Floating
Rate Notes Due October 2033 (current balance of $72,584,217),
Upgraded to Baa3 (sf); previously on March 27, 2009 Downgraded
to Ba3 (sf).
RATINGS RATIONALE
According to Moody's, the rating action taken on the notes
is primarily the result of improvement in the credit quality of the underlying
portfolio as well as the deleveraging of the Class A-2L Notes since
the last rating action in November 2010.
Moody's notes that the deal benefited from an improvement in the credit
quality of the underlying portfolio. As per Moody's calculation,
the weighted average rating factor (WARF) improved to 1266 compared to
1933 as of the last rating action date.
Moody's also notes that the Class A-1L Notes have been paid
down in full and the Class A-2L notes have become the senior-most
notes in the capital structure. Since the last rating action,
the Class A-2L Notes have been paid down by approximately 19.4%
or $17 million, as a result of diversion of excess interest
proceeds and disbursement of principal proceeds from redemptions of three
underlying assets. Going forward, they will continue to benefit
from the diversion of excess interest and the proceeds from future redemptions
of any assets in the collateral pool.
Moody's notes that the underlying portfolio is highly concentrated with
only 15 performing obligors. The deal's lack of granularity introduces
high volatility to the performance of the deal.
Due to the impact of revised and updated key assumptions referenced in
our rating methodology, 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 its base
case, Moody's analyzed the underlying collateral pool to have
a performing par of $100 million, defaulted/deferring par
of $140 million, a weighted average default probability of
24.35% (implying a WARF of 1226), Moody's Asset
Correlation of 25.16%, and a weighted average recovery
rate upon default of 9.6%. In addition to the quantitative
factors that are explicitly modeled, qualitative factors are part
of rating committee considerations. Moody's considers the structural
protections in the transaction, the risk of triggering 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, may influence the final rating decision.
Tropic CDO I Ltd., issued on April 23, 2003,
is a collateral debt obligation backed by a portfolio of bank and insurance
trust preferred securities.
The portfolio of this CDO is mainly comprised of trust preferred securities
(TruPS) issued by small to medium sized U.S. community banks
and insurance companies that are generally not publicly rated by Moody's.
To evaluate the credit quality of bank TruPS without public ratings,
Moody's uses RiskCalc model, an econometric model developed by Moody's
KMV, to derive their credit scores. Moody's evaluation of
the credit risk for a majority of bank obligors in the pool relies on
FDIC financial data received as of Q2-2012. For insurance
TruPS without public ratings, Moody's relies on the assessment of
Moody's Insurance team based on the credit analysis of the underlying
insurance firms' annual statutory financial reports.
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.
Moody's also evaluates the sensitivity of the rated transaction to the
volatility of the credit estimates, as described in Moody's Rating
Implementation Guidance "Updated Approach to the Usage of Credit Estimates
in Rated Transactions" published in October 2009.
The transaction's portfolio was modeled using CDOROM v.2.8-5
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.2.8-5
is available on moodys.com under Products and Solutions --
Analytical models, upon return of a signed free license agreement.
Moody's performed a number of sensitivity analyses of the results to certain
key factors driving the ratings. We analyzed the sensitivity of
the model results to changes in the portfolio WARF (representing an improvement
or a deterioration in the credit quality of the collateral pool),
assuming that all other factors are held equal. If the WARF is
increased by 474 points from the base case of 1226 the model-implied
rating of the Class A-2L Notes is one notch worse than the base
case result. Similarly, if the WARF is decreased by 226 points,
the model-implied rating of the Class A-2L Notes is one
notch better than the base case result.
In addition, Moody's also performed two additional sensitivity
analyses as described in the Special Comment "Sensitivity Analyses
on Deferral Cures and Default Timing for Monitoring TruPS CDOs"
published in August 2012. In the first, we gave par credit
to banks that are deferring interest on their TruPS but satisfy specific
credit criteria and thus have a strong likelihood of resuming interest
payments. Under this sensitivity analysis, we gave par credit
to $10 million of bank TruPS. In the second sensitivity
analysis, we ran alternative default-timing profile scenarios
to reflect the lower likelihood of a large spike in defaults. Below
is a summary of the impact on all rated notes (shown in terms of the number
of notches' difference versus the current model output, where a
positive difference corresponds to lower expected loss), assuming
that all other factors are held equal:
Sensitivity Analysis 1:
Class A-2L: +2
Class A-3L: +1
Class A-4L: 0
Class B-1L: 0
Sensitivity Analysis 2:
Class A-2L: +1
Class A-3L: 0
Class A-4L: 0
Class A-4: 0
Class B-1L: 0
Moody's notes that this transaction is subject to a high level of
macroeconomic uncertainty, as our outlook on the banking sector
remains negative, although there have been some recent signs of
stabilization. The pace of FDIC bank failures continues to decline
in 2012 compared to 2011, 2010 and 2009, and some of the previously
deferring banks have resumed interest payment on their trust preferred
securities. Moody's continues to have a stable outlook in
the insurance sector.
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 endorsed by Moody's
Investors Service Ltd., One Canada Square, Canary Wharf,
London E 14 5FA, UK, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
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, 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.
Moody's adopts all necessary measures so that the information it
uses in assigning a 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 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.
Sarah Christine Dolan
Associate 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 the rating on TruPS CDO notes issued by Tropic CDO I Ltd.
