New York, October 18, 2013 -- Moody's Investors Service announced today that it has upgraded the ratings
of the following notes issued by Preferred Term Securities XIV,
Ltd.
U.S. $257,800,000 Floating Rate Class
A-1 Senior Notes Due June 24, 2034 (current balance $186,301,339.60),
Upgraded to A1 (sf); previously on August 5, 2013 Baa1 (sf)
Placed on Review for Possible Upgrade;
U.S. $62,000,000 Floating Rate Class
A-2 Senior Notes Due June 24, 2034. Upgraded to Baa2
(sf); previously on August 5, 2013 Ba2 (sf) Placed on Review
for Possible Upgrade.
RATINGS RATIONALE
According to Moody's, the rating actions taken on the notes
are primarily a result of deleveraging of Class A-1 Notes and an
increase in the transaction's overcollateralization ratios since
September 2012.
Moody's notes that the Class A-1 Notes have been paid down
by approximately $23 million since last year, due to disbursement
of principal proceeds from redemptions of underlying assets and diversion
of excess interest proceeds. As a result of this deleveraging,
the Senior Principal Coverage Test has improved to 115.67%,
as reported by the trustee in September 2013, compared to 103.98%,
as reported by the trustee in September 2012. Currently the Class
A-1 Overcollateralization is 154.16% as calculated
by Moody's. Going forward, the Class A-1 Notes
will continue to benefit from the diversion of excess interest and the
proceeds from potential future redemptions of any assets in the collateral
pool.
Moody's also notes that the dollar amount of assets that Moody's
treats as defaulted in its analysis has also decreased. Since last
September the total amount has decreased to $166 million from $185.5
million. Three assets which were deferring in September 2012 resumed
interest payments, one of which is no longer in the portfolio.
In taking the forgoing actions, Moody's also announced that it had
concluded its review of its ratings on the issuer's Class A-1 and
A-2 Notes announced on August 5, 2013. At that time,
Moody's placed certain of the issuer's ratings on review primarily as
a result of substantial deleveraging of senior notes and increases in
par coverage ratios.
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 and Accreted Value of the FHLMC Principal Strip of $287
million, defaulted/deferring par of $166 million, a
weighted average default probability of 17.68% (implying
a WARF of 785) Moody's Asset Correlation of 21.45%,
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.
Preferred Term Securities XIV, Ltd. issued on June 17,
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
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 Q2-2013.
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 to 980 points from the base case of 785 the model-implied
rating of the Class A-1 Notes is one notch worse than the base
case result. Similarly, if the WARF is decreased 600 points,
the model-implied rating of the Class A-1 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 $55.25 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-1: +1
Class A-2: +2
Class B-1: +4
Class B-2: +4
Class B-3: +4
Sensitivity Analysis 2:
Class A-1: 0
Class A-2: 0
Class B-1: 0
Class B-2: 0
Class B-3: 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 few 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.
Yasmine Mahdavi
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/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 $248 million of TruPS CDO notes issued by Preferred Term Securities XIV, Ltd.
