New York, August 14, 2013 -- Moody's Investors Service announced today that it has upgraded the ratings
of the following notes issued by Preferred Term Securities XII,
Ltd.:
U.S. $442,400,000 Floating Rate Class
A-1 Senior Notes Due December 24, 2033 (current balance of
$225,705,243.50), Upgraded to Aa1 (sf);
previously on August 5, 2013 Upgraded to A1 (sf) and Placed Under
Review for Possible Upgrade;
U.S. $64,000,000 Floating Rate Class
A-2 Senior Notes Due December 24, 2033, Upgraded to
A1 (sf); previously on August 5, 2013 Upgraded to Baa1 (sf)
and Placed Under Review for Possible Upgrade;
U.S. $10,000,000 Fixed/Floating Rate
Class A-3 Senior Notes Due December 24, 2033, Upgraded
to A1 (sf); previously on August 5, 2013 Upgraded to Baa1 (sf)
and Placed Under Review for Possible Upgrade;
U.S. $17,000,000 Fixed/Floating Rate
Class A-4 Senior Notes Due December 24, 2033, Upgraded
to A1 (sf); previously on August 5, 2013 Upgraded to Baa1 (sf)
and Placed Under Review for Possible Upgrade;
U.S. $204,400,000 Floating Rate Class
B-1 Mezzanine Notes Due December 24, 2033 (current balance
of $206,675,935.32 including interest shortfall),
Upgraded to Caa3 (sf); previously on March 27, 2009 Downgraded
to Ca (sf);
U.S. $20,500,000 Fixed/Floating Rate
Class B-2 Mezzanine Notes Due December 24, 2033 (current
balance of $20,728,261.61 including interest
shortfall), Upgraded to Caa3 (sf); previously on March 27,
2009 Downgraded to Ca (sf);
U.S. $37,700,000 Fixed/Floating Rate
Class B-3 Mezzanine Notes Due December 24, 2033 (current
balance of $38,119,778.68 including interest
shortfall), Upgraded to Caa3 (sf); previously on March 27,
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 A-1 Notes and
an increase in the transaction's overcollateralization ratio as
well as the improvement in the credit quality of the underlying portfolio
since September 2012.
Moody's notes that the Class A-1 notes have been paid down
by approximately 8% or $20 million since September 2012,
due to disbursement of principal proceeds from redemptions of underlying
assets. As a result of this deleveraging, the Class A-1
notes' par coverage improved to 202.0% from 183.4%
since September 2012, as calculated by Moody's. Based
on the latest trustee report dated June 2013, the Senior Principal
Coverage Test is reported at 144.0% (limit 128%)
versus September 2012 level of 131.9%. The trustee
ratio does not take into consideration the pay down which occurred on
the June 2013 payment date. Going forward, the Class A-1
notes will continue to benefit from 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 739 compared to 1209. The total par amount that Moody's
treated as defaulted or deferring declined to $203.6 million
compared to $278.6 million. Since September 2012,
two previously deferring banks with a total par of $25 million
have resumed interest payments while three assets with a total par of
$40 million have redeemed at par.
Class B-1 notes, Class B-2 notes and Class B-3
notes are paying their current interest, however, the cumulative
deferred balance still outstanding.
In taking the foregoing actions, Moody's also announced that
it has concluded its review of its ratings on the issuer's Class
A-1, Class A-2, Class A-3 and Class A-4
announced on August 5, 2013. At that time, Moody's
said that it had upgraded and placed certain of the issuer's ratings
on review primarily as a result of substantial deleveraging of senior
notes and increases in overcollateralization (OC) ratios and improvements
in the credit quality of the underlying portfolio.
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 of $455.9 million, defaulted/deferring par of
$203.6 million, a weighted average default probability
of 16.8% (implying a WARF of 739), Moody's Asset
Correlation of 22.3%, 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 XII, Ltd., issued on December
17, 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.
The principal methodology used in this rating was "Moody's Approach to
Rating TRUP CDOs" published in May 2011. 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. 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
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.
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 91 points from the base case of 739, 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 by 334 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 $20.5 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: 0
Class A-2: 0
Class A-3: 0
Class A-4: 0
Class B-1: +1
Class B-2: +1
Class B-3: +1
Sensitivity Analysis 2:
Class A-1: 0
Class A-2: 0
Class A-3: 0
Class A-4: 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.
Suzanna Sava
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 $582 million of TruPS CDO notes issued by Preferred Term Securities XII, Ltd.
