Moody's also affirms the ratings of $98.8 million of notes
NOTE: On September 03, 2013, the press release was revised as follows: Replaced the third paragraph under the Ratings Rationale with the following: "Notwithstanding the improvement due to deleveraging, the credit quality of the underlying portfolio has deteriorated. Based on Moody's calculation, the weighted average rating factor (WARF) increased to 1433 compared to 1242 in Feb 2012." Revised release follows.
New York, August 19, 2013 -- Moody's Investors Service announced today that it has upgraded the ratings
of the following notes issued by I-Preferred Term Securities IV,
Ltd.:
U.S. $162,500,000 Floating Rate Class
A-1 Senior Notes Due June 24, 2034 (current balance of $44,363,781.08),
Upgraded to Aaa (sf); previously on March 27, 2009 Downgraded
to Aa2 (sf);
U.S. $37,000,000 Floating Rate Class
A-2 Senior Notes Due June 24, 2034, Upgraded to Aa2
(sf); previously on February 24, 2012 Upgraded to A1 (sf);
U.S. $13,900,000 Fixed/Floating Rate
Class A-3 Senior Notes Due June 24, 2034, Upgraded
to Aa2 (sf); previously on February 24, 2012 Upgraded to A1
(sf).
Moody's also affirmed the ratings of the following notes:
U.S. $54,650,000 Floating Rate Class
B-1 Mezzanine Notes Due June 24, 2034, Affirmed Ba2
(sf); previously on March 27, 2009 Downgraded to Ba2 (sf);
U.S. $25,500,000 Fixed/Floating Rate
Class B-2 Mezzanine Notes Due June 24, 2034, Affirmed
Ba2 (sf); previously on March 27, 2009 Downgraded to Ba2 (sf);
U.S. $12,450,000 Floating Rate Class
C Mezzanine Notes Due June 24, 2034, Affirmed Caa1 (sf);
previously on March 27, 2009 Downgraded to Caa1 (sf);
U.S. $6,200,000 Floating Rate Class D
Subordinate Notes Due June 24, 2034, Affirmed Caa2 (sf);
previously on March 27, 2009 Downgraded to Caa2 (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 ratios since September
2012.
Moody's notes that the Class A-1 Notes have been paid down by approximately
49.5% or $43.4 million since September 2012,
due to disbursement of principal proceeds from redemptions of underlying
assets and diversion of excess interest proceeds. Since September
2012, the transaction has received $40.8 million from
the redemption or sale of eight assets. As a result of this deleveraging,
the Class A-1 notes' par coverage improved to 449% based
on Moody's calculation. According to the latest trustee report
dated June 28, 2013, the Senior, Class B and Class C
overcollateralization ratios are reported at 209.08% (limit
128%), 113.55% (limit 106%) and 106.02%
(limit 103.5%), respectively, versus September
2012 levels of 168.98%, 107.09% and
101.32%, respectively. Going forward,
the Class A-1 notes will continue to benefit from the diversion
of excess interest and the proceeds from future redemptions of any assets
in the collateral pool.
Notwithstanding the improvement due to deleveraging, the credit quality of the underlying portfolio has deteriorated. Based on Moody's calculation, the weighted average rating factor (WARF) increased to 1433 compared to 1242 in Feb 2012.
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 $199 million, defaulted/deferring par of $23 million,
a weighted average default probability of 24.33% (implying
a WARF of 1433), Moody's Asset Correlation of 19.65%,
and a weighted average recovery rate upon default of 6.5%.
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.
I-Preferred Term Securities IV, Ltd., issued
in May 2004, is a collateralized debt obligation backed by a portfolio
of insurance and bank trust preferred securities.
The portfolio of this CDO is mainly comprised of trust preferred securities
(TruPS) issued by small to medium sized insurance companies and U.S.
community banks that are generally not publicly rated by Moody's.
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.
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.2.8.9
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 537 points from the base case of 1433, the model-implied
rating of the A-1 notes is one notch worse than the base case result.
In addition, Moody's also performed one additional sensitivity analysis
as described in the Special Comment "Sensitivity Analyses on Deferral
Cures and Default Timing for Monitoring TruPS CDOs" published in August
2012. In the 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:
Class A-1: 0
Class A-2: 0
Class A-3: 0
Class B-1: +1
Class B-2: +1
Class C: +1
Class D: +1
Moody's notes that this transaction is still subject to a high level of
macroeconomic uncertainty although Moody's continues to have a stable
outlook on the insurance sector, other than the negative outlook
on the U.S. life insurance industry. 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.
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 $95.3 million of TruPS CDO notes issued by I-Preferred Term Securities IV, Ltd.
