New York, July 25, 2013 -- Moody's Investors Service announced today that it has upgraded the ratings
of the following notes issued by Trapeza CDO II, LLC:
U.S. $100,000,000 Class A1B Second Priority
Senior Secured Floating Rate Notes due October 5, 2033 (current
balance of $55,276,236.71), Upgraded to
Aaa (sf); previously on December 22, 2009 Downgraded to A3
(sf)
U.S. $27,000,000 Class B Third Priority
Senior Secured Floating Rate Notes due October 5, 2033, Upgraded
to A1 (sf); previously on December 22, 2009 Downgraded to Ba1
(sf)
U.S. $43,500,000 Class C-1 Fourth
Priority Senior Secured Floating Rate Notes due October 5, 2033
(current balance of $47,069,222.74 including
interest shortfall), Upgraded to Caa3 (sf); previously on December
22, 2009 Downgraded to Ca (sf)
U.S. $54,800,000 Class C-2 Fourth
Priority Senior Secured Floating Rate Notes due October 5, 2033
(current balance of $59,296,400.14 including
interest shortfall), Upgraded to Caa3 (sf); previously on December
22, 2009 Downgraded to Ca (sf)
RATINGS RATIONALE
According to Moody's, the rating actions taken on the notes
are primarily a result of deleveraging of the Class A1B Notes, an
increase in the transaction's overcollateralization ratios as well
as the improvement in the credit quality of the underlying portfolio as
measured by the weighted average rating factor (WARF), The deleveraging
is due to diversion of excess interest after paying interest on the Class
A1B, C1, C2, and D Notes and the redemption of performing
and deferring assets.
Moody's notes that the Class A1B Notes have been paid down by approximately
45% or $44.7 million since October 2012, due
to the diversion of excess interest proceeds and disbursement of principal
proceeds from redemptions of underlying assets. As a result of
this deleveraging, the Class A1B notes' par coverage improved to
282.12% based on Moody's calculation. According
to the latest trustee report dated June 30, 2013, the Class
A/B Overcollateralization Test, and Class C/D Overcollateralization
Test Ratio are reported at 191.61% (limit 154.49%)
and 77.04% (limit 106.41%), respectively,
versus November 2012 levels of 170.50%, and 75.41%,
respectively. Going forward, the Class A1B notes 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 credit quality of the overall portfolio as measured
by the Moody's calculated WARF is now 805.
Moody's notes that the key model inputs used by Moody's in its analysis,
such as par, weighted average rating factor, diversity score,
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 and principal proceeds balance of $155.9
million, defaulted/deferring par of $85.0 million,
a weighted average default probability of 17.72% (implying
a WARF of 805), Moody's Asset Correlation of 20.5%,
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.
Trapeza CDO II, LLC, issued on March 11, 2003,
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
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 reported as of Q1-2013.
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 methodologies used in this rating were "Moody's Approach to Rating
TRUP CDOs" published in May 2011, and "Updated Approach to the Usage
of Credit Estimates in Rated Transactions" published in October 2009.
Please see the Credit Policy page on www.moodys.com for
a copy of these methodologies.
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 239 points from the base case of 805, the model-implied
rating of the A1B notes is one notch worse than the base case result.
Similarly, if the WARF is decreased by 67 points, the model-implied
rating of the A1B 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 sensitivity analysis,
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 $13.3 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 A1B: +0
Class B: +0
Class C1: +3
Class C2: +3
Class D: +0
Sensitivity Analysis 2:
Class A1B: +0
Class B: +0
Class C1: +3
Class C2: +3
Class D: +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 the last four years, 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.
Andrew Worthington
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 $194.6 million of TruPS CDO notes issued by Trapeza CDO II, LLC.
