Moody's also upgrades and affirms the ratings of notes in PreTSL Combination Trust 1 and PreTSL Combination Certificates
New York, October 31, 2013 -- Moody's Investors Service, ("Moody's") announced
today that it has upgraded the ratings of the following notes issued by
Preferred Term Securities XIX, Ltd., PreTSL Combination
Trust 1 and PreTSL Combination Certificates:
Preferred Term Securities XIX, Ltd:
U.S. $385,300,000 Floating Rate Class
A-1 Senior Notes due December 22, 2035 (current balance of
$302,298,206), Upgraded to A2 (sf); previously
on October 22, 2010 Downgraded to Baa2 (sf)
U.S. $98,100,000 Floating Rate Class
A-2 Senior Notes due December 22, 2035 (current balance of
$ $95,890,802), Upgraded to Baa2 (sf);
previously on October 22, 2010 Downgraded to Ba3 (sf)
U.S. $87,600,000 Floating Rate Class
B Mezzanine Notes due December 22, 2035 (current balance of $89,267,910),
Upgraded to Caa2 (sf); previously on October 22, 2010 Downgraded
to Ca (sf)
PreTSL Combination Trust I:
U.S. $15,200,000 Combination Certificates,
Series P XIX-1 due December 22, 2035 (current Moody's
Ratable Balance of $8,850,694), Upgraded to Aa1
(sf); previously on November 23, 2010 Downgraded to Aa3 (sf)
Moody's also affirmed the ratings of the following notes:
Preferred Term Securities XIX, Ltd:
U.S. $82,800,000 Floating Rate Class
C Mezzanine Notes due December 22, 2035 (current balance of $88,706,625),
Affirmed C (sf); previously on October 22, 2010 Downgraded
to C (sf)
PreTSL Combination Certificates:
U.S. $9,000,000 Combination, Series
P XIX-4 due December 22, 2035 (current Moody's Ratable
Balance of $6,514,987), Affirmed Ca (sf);
previously on November 23, 2010 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 ratios since
September 2012. Moody's notes that the Class A-1 Notes
have paid down by approximately 11.5% or $39.3
million since September 2012, due to disbursement of principal proceeds
from redemptions of underlying assets and diversion of excess interest
proceeds. As a result of this deleveraging, the Class A-1
Notes' par coverage improved to 157.30%, as calculated
by Moody's. Based on the latest trustee report dated September
23, 2013, the Senior Coverage Ratio, Class B Mezzanine
Coverage Ratio and Class C Mezzanine Coverage Ratio are reported at 119.41%
(limit 128.00%), 97.54% (limit 115.00%)
and 82.53% (limit 105.40%), respectively,
versus September 22, 2012 levels of 106.47%,
88.56% and 75.95%, respectively.
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 decreased. The total par amount that
Moody's treated as defaulted or deferring declined to $137.7
million compared to $182.2 million in September 2012.
Six assets which were deferring in September 2012 resumed interest payments,
two of which are no longer in the 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 $475.5 million (including $3.3
million accreted value of principal strip that will mature on July 15,
2015), defaulted/deferring par of $137.7 million,
a weighted average default probability of 28.40% (implying
a WARF of 1501), Moody's Asset Correlation of 13.88%,
and a weighted average recovery rate upon default of 8.43%.
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 XIX, Ltd. issued in September 2005,
is a collateralized debt obligation backed by a portfolio of bank,
insurance and TruPS CDO Tranches.
The portfolio of this CDO is mainly comprised of trust preferred securities
(TruPS) issued by small to medium sized U.S. community banks
and insurance companies 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. 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.
The methodologies used in these ratings 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.
The methodology used in rating PreTSL Combination Trust I Series P XIX-1
Certificates and PreTSL Combination Series P XIX-4 was "Using the
Structured Note Methodology to Rate CDO Combo-Notes" published
in February 2004. Please see the Credit Policy page on www.moodys.com
for a copy of these methodologies.
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 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 129 points from the base case of 1501, 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 76 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 $22.3 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 A-1: +1
Class A-2: 0
Class B: +1
Class C: 0
Combination Certificates, Series P XIX-1: 0
Combination Certificates, Series P XIX-4: +1
Sensitivity Analysis 2:
Class A-1: +1
Class A-2: 0
Class B: +1
Class C: 0
Combination Certificates, Series P XIX-1: +1
Combination Certificates, Series P XIX-4: +1
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. Moody's continues to have
a stable outlook on the insurance sector, other than the negative
outlook on the U.S. life insurance industry.
REGULATORY DISCLOSURES
Moody's did not receive or take into account any third party assessment
on the due diligence performed regarding the underlying assets or financial
instruments related to the monitoring of these transactions 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.
Shana Sethi
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 notes in Preferred Term Securities XIX, Ltd.
