Approximately USD 128 million of debt securities affected
New York, February 16, 2012 -- Moody's Investors Service announced today that it has upgraded the ratings
on the following two notes issued by Trapeza CDO IV, Ltd.
U.S. $95,000,000 Class A1B Second Priority
Senior Secured Floating Rate Notes Due 2034 (current balance of $95,000,000),
Upgraded to A3 (sf); previously on March 27, 2009 Downgraded
to Ba1 (sf);
U.S. $33,000,000 Class B Third Priority
Senior Secured Floating Rate Notes Due 2034 current balance of $33,000,000),
Upgraded to Ba1 (sf); previously on March 27, 2009 Downgraded
to B2 (sf).
RATINGS RATIONALE
According to Moody's, the rating upgrade actions taken today are
primarily the result of significant deleveraging of the Class A-1A
notes and the improvement in the credit quality of the underlying portfolio.
The deleveraging is due to significant pay down of the Class A1A notes,
which have received about $70.5 million since the last rating
action due to overcollateralization test failures. The $70.5
million of pay down came from a combination of excess interest proceeds
as well as sales and redemptions of underlying assets. Four assets
have been redeemed at par and two distress assets were sold at significant
discount. As a result, there has been improvement in the
Class A1A notes' par coverage since the last rating action. Going
forward, the Class A1A notes will continue to benefit from the diversion
of excess interest to cure the coverage test failures. As of the
latest trustee report dated January 15, 2012, the Class A/B
Overcollateralization Test is still failing at 116.72% (limit
141.50%), and the Class C/D Overcollateralization
Test is still failing at 74.247% (limit 102.00%),
versus 123.698% and 89.283% respectively,
as reported by the trustee as of March 15, 2009, values that
were used for the last rating action.
In addition, the credit quality of the portfolio has improved as
indicated by a decrease in Moody's-calculated weighted average
rating factor (WARF) to 522, from 1305 as of the last rating action
date.
Trapeza CDO IV, Ltd., issued on October 17, 2003,
is a collateralized debt obligation backed by a portfolio of bank trust
preferred securities (the 'TruPS CDO'). On March 27, 2009,
the last rating action date, Moody's downgraded the ratings on two
classes of notes as a result of the deterioration in the credit quality
of the transaction's underlying portfolio.
In Moody's opinion, the banking sector outlook remains negative
although there have been some signs of stabilization. The pace
of bank failures continues to decline in 2012 compared to 2011,
2010 and 2009, and some of the previously deferring banks have resumed
interest payment on their trust preferred securities.
The portfolio of this CDO is mainly composed of trust preferred securities
issued by small to medium sized U.S. community banks that
are generally not publicly rated by Moody's. To evaluate their
credit quality, Moody's uses the RiskCalc model, an econometric
model developed by Moody's KMV, to derive credit scores for these
non-publicly rated bank trust preferred securities. Moody's
evaluation of the credit risk for a majority of bank obligors in the pool
relies on FDIC financial data received as of Q3-2011. Moody's
also evaluates the sensitivity of the rated transactions to the volatility
of the credit estimates, as described in Moody's Rating Implementation
Guidance "Updated Approach to the Usage of Credit Estimates in Rated Transactions,"
October 2009.
Moody's performed a number of sensitivity analyses of the results to some
of the key factors driving the ratings. The sensitivity of the
model results to changes in the WARF (representing a slight improvement
and a slight deterioration in the credit quality of the collateral pool)
was examined. If WARF is increased by 178 points from the base
case of 522, the model results in an expected loss that is one notch
worse than the result of the base case for the Class A-1 Notes.
Similarly, if the WARF is decreased by 100 points, expected
losses are one notch better than the base case results. Moody's
also took into consideration, both quantitatively and qualitatively,
the possibility that some of the deferring banks in the portfolio may
resume interest payments on their trust preferred securities.
In addition to the quantitative factors that are explicitly modeled,
qualitative factors are part of rating committee considerations.
Moody's also considers the structural protections in the transaction,
the risk of triggering an Event of Default, the recent deal performance
in the current market conditions, the legal environment, and
specific documentation features. All information available to rating
committees, including macroeconomic forecasts, input 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.
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 this methodology.
Due to the impact of revised and updated key assumptions referenced in
these rating methodologies, key model inputs used by Moody's in
its analysis, such as par, weighted average rating factor,
Moody's Asset Correlation, and weighted average recovery rate,
may be different from the trustee's reported numbers. The transaction's
portfolio was modeled, according to our rating approach, 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.
Further information on Moody's analysis of this transaction is available
on www.moodys.com.
REGULATORY DISCLOSURES
Although this credit rating has been issued in a non-EU country
which has not been recognized as endorsable at this date, this credit
rating is deemed "EU qualified by extension" and may still
be used by financial institutions for regulatory purposes until 30 April
2012. Further information on the EU endorsement status and on the
Moody's office that has issued a particular Credit Rating is available
on www.moodys.com.
For ratings issued on a program, series or category/class of debt,
this announcement provides relevant 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 relevant 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 relevant 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.
Information sources used to prepare the rating are the following:
parties involved in the ratings, public information, and confidential
and proprietary Moody's Investors Service information, and confidential
and proprietary Moody's Analytics' information.
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.
Moody's considers the quality of information available on the rated
entity, obligation or credit satisfactory for the purposes of issuing
a rating.
Moody's adopts all necessary measures so that the information it
uses in assigning a rating is of sufficient quality and from sources Moody's
considers to be reliable including, when appropriate, independent
third-party sources. However, Moody's is not
an auditor and cannot in every instance independently verify or validate
information received in the rating process.
Please see the ratings disclosure page on www.moodys.com
for general disclosure on potential conflicts of interests.
Please see the ratings disclosure page on www.moodys.com
for information on (A) MCO's major shareholders (above 5%) and
for (B) further information regarding certain affiliations that may exist
between directors of MCO and rated entities as well as (C) the names of
entities that hold ratings from MIS that have also publicly reported to
the SEC an ownership interest in MCO of more than 5%. A
member of the board of directors of this rated entity may also be a member
of the board of directors of a shareholder of Moody's Corporation;
however, Moody's has not independently verified this matter.
Please see Moody's Rating Symbols and Definitions on the Rating Process
page on www.moodys.com for further information on the meaning
of each rating category and the definition of default and recovery.
Please see ratings tab on the issuer/entity page on www.moodys.com
for the last rating action and the rating history.
The date on which some ratings were first released goes back to a time
before Moody's ratings were fully digitized and accurate data may not
be available. Consequently, Moody's provides a date that
it believes is the most reliable and accurate based on the information
that is available to it. Please see the ratings disclosure page
on our website www.moodys.com for further information.
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.
Rachid Ouzidane
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
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 TruPS CDO notes issued by Trapeza CDO IV, Ltd.
