Moody's also affirms the rating of $91.5 mm of notes.
New York, July 26, 2013 -- Moody's Investors Service announced today that it has upgraded the rating
of the following notes issued by Tropic CDO III, Ltd.:
U.S. $158,000,000 Class A-1L Floating
Rate Notes Due 2034 (current balance of $80,289,897),
Upgraded to Aa2 (sf); previously on October 30, 2009 Downgraded
to Baa2 (sf);
U.S. $45,000,000 Class A-2L Floating
Rate Notes Due 2034, Upgraded to A2 (sf); previously on March
27, 2009 Downgraded to Ba1 (sf);
U.S. $31,000,000 Class A-3L Floating
Rate Notes Due 2034 (current balance of $33,104,494),
Upgraded to B2 (sf); previously on October 30, 2009 Downgraded
to Caa3 (sf).
Moody's also affirmed the ratings of the following notes:
U.S. $19,500,000 Class A-4L Floating
Rate Notes Due 2034 (current balance of $21,349,773),
Affirmed C (sf); previously on October 30, 2009 Downgraded
to C (sf);
U.S. $40,500,000 Class A-4A Fixed/Floating
Rate Notes Due 2034 (current balance of $44,341,836),
Affirmed C (sf); previously on October 30, 2009 Downgraded
to C (sf);
U.S. $20,000,000 Class A-4B Fixed/Floating
Rate Notes Due 2034 (current balance of $25,851,162),
Affirmed C (sf); previously on October 30, 2009 Downgraded
to C (sf).
RATINGS RATIONALE
According to Moody's, the upgrade rating actions taken on the notes
are primarily a result of the deleveraging of the Class A-1L notes,
an increase in the transaction's overcollateralization ratios, and
the improvement in the credit quality of the underlying portfolio.
Moody's notes that the Class A-1L notes have been paid down by
approximately 31% or $35.7 million since September
2012, due to disbursement of principal proceeds from redemptions
of underlying assets and diversion of excess interest proceeds.
In addition, the transaction's overcollateralization ratios
have increased due to the decrease in the amount of defaulted securities.
Since September 2012, three previously deferring banks with a total
par of $25 million have resumed interest payments on their TruPS
while three assets with a total par of $29.8 million have
redeemed at par. Based on the latest trustee note valuation report
dated June 24, 2013, the Senior, Senior Subordinate
and Subordinate principal coverage ratios are reported at 141.00%
(limit 140.00%), 113.04% (limit 125.00%)
and 74.77% (limit 104.00%), respectively,
versus September 2012 levels of 112.91%, 94.67%
and 66.82%, respectively. Going forward,
the Class A-1L 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 also notes that the deal benefited from an improvement in
the credit quality of the underlying portfolio. Based on Moody's
calculation, the weighted average rating factor (WARF) improved
to 836 compared to 942 during the last rating review in May 2012.
The total par amount that Moody's treated as defaulted or deferring
declined to $96.7 million compared to $141.7
million as of the last rating review.
Moody's notes that the key model inputs used by Moody's in its analysis,
such as par, weighted average rating factor, and weighted
average recovery rate, are based on its published methodology and
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 balance of $174.7 million, defaulted/deferring
par of $96.7 million, a weighted average default probability
of 18.78% (implying a WARF of 836), Moody's Asset
Correlation of 19.1%, and a weighted average recovery
rate upon default of 10%. 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 III, Ltd., issued in February 2004,
is a collateralized debt obligation backed by a portfolio of bank 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 Q1-2013.
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 these methodologies.
Moody's also evaluates the sensitivity of the rated transaction to the
volatility of the credit estimates, as described in Moody's Cross-Sector
Rating Methodology "Updated Approach to the Usage of Credit Estimates
in Rated Transactions" published in October 2009.
The transaction's portfolio was modeled using CDOROM v.2.8.9
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.2.8.9
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 200 points from the base case of 836, the model-implied
rating of the Class A-1L notes is one notch worse than the base
case result. Similarly, if the WARF is decreased by 180 points,
the model-implied rating of the Class A-1L 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 $19.2
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-1L: +1
Class A-2L: +1
Class A-3L: +2
Class A-4L: 0
Class A-4A: 0
Class A-4B: 0
Sensitivity Analysis 2:
Class A-1L: 0
Class A-2L: +1
Class A-3L: +1
Class A-4L: 0
Class A-4A: 0
Class A-4B: 0
Moody's notes that this transaction is still subject to a high level of
macroeconomic uncertainty although our outlook on the banking sector has
changed to stable from negative. The pace of FDIC bank failures
continues to decline in 2013 compared to 2012, 2011, 2010
and 2009, and some of the previously deferring banks have resumed
interest payment on their trust preferred securities.
Further information on Moody's analysis of this transaction is available
on www.moodys.com.
REGULATORY DISCLOSURES
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.
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.
Sange Lama
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/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 upgrades the ratings of $158 mm of TruPS CDO notes issued by Tropic CDO III, Ltd.
