New York, February 10, 2020 -- Moody's Investors Service has upgraded the ratings on the following notes
issued by ALESCO Preferred Funding IV, Ltd.:
U.S.$195,000,000 Class A-1 First
Priority Senior Secured Floating Rate Notes Due 2034 (current balance
of $48,880,602.89), Upgraded to Aaa (sf);
previously on February 10, 2017 Upgraded to Aa1 (sf)
U.S.$63,000,000 Class A-2 Second
Priority Senior Secured Floating Rate Notes Due 2034, Upgraded to
Aa2 (sf); previously on February 10, 2017 Upgraded to Aa3 (sf)
U.S.$7,000,000 Class A-3 Second
Priority Senior Secured Fixed/Floating Rate Notes Due 2034, Upgraded
to Aa2 (sf); previously on February 10, 2017 Upgraded to Aa3
(sf)
ALESCO Preferred Funding IV, Ltd., issued in May 2004,
is a collateralized debt obligation (CDO) backed by a portfolio of bank
trust preferred securities (TruPS).
RATINGS RATIONALE
The rating actions are primarily a result of the deleveraging of the Class
A-1 notes, an increase in the transaction's over-collateralization
(OC) ratios, and the improvement in the credit quality of the underlying
portfolio since February 2019.
The Class A-1 notes have paid down by approximately 6.6%
or $3.4 million since February 2019, using principal
proceeds from the redemption of the underlying assets and the diversion
of excess interest proceeds. Based on Moody's calculations,
the OC ratios for the Class A-1 notes and Class A notes have improved
to 413.2% and 169.9%, respectively,
from February 2019 levels of 388.7% and 166.3%,
respectively. The Class A-1 notes will continue to benefit
from the diversion of excess interest and the use of proceeds from redemptions
of any assets in the collateral pool.
The deal has also benefited from improvement in the credit quality of
the underlying portfolio. According to Moody's calculations,
the weighted average rating factor (WARF) improved to 687 from 830 in
February 2019.
Moody's rating actions took into account a stress scenario for highly
levered bank holding company issuers. The transaction's portfolio
includes TruPS issued by a number of bank holding companies with significant
amounts of other debt on their balance sheet which may increase the risk
presented by their subsidiaries. To address the risk from higher
debt burden at the bank holding companies, we conducted a stress
scenario in which we made adjustments to the RiskCalc credit scores for
these highly leveraged holding companies. This stress scenario
was an important consideration in the rating actions.
The key model inputs Moody's used in its analysis, such as
par, weighted average rating factor, and weighted average
recovery rate, are based on its methodology and could differ from
the trustee's reported numbers. In its base case, Moody's
analyzed the underlying collateral pool as having a performing par (after
treating deferring securities as performing if they meet certain criteria)
of $202.0 million, defaulted/deferring par of $58.8
million, a weighted average default probability of 6.64%
(implying a WARF of 687), and a weighted average recovery rate upon
default of 10%.
Methodology Underlying the Rating Action:
The principal methodology used in these ratings was "Moody's Approach
to Rating TruPS CDOs" published in March 2019. Please see the Rating
Methodologies page on www.moodys.com for a copy of this
methodology.
Factors that Would Lead to an Upgrade or Downgrade of the Ratings:
The performance of the rated notes is subject to uncertainty. The
performance of the rated notes is sensitive to the performance of the
underlying portfolio, which in turn depends on economic and credit
conditions that may change. The portfolio consists primarily of
unrated assets whose default probability Moody's assesses through credit
scores derived using RiskCalc™ or credit assessments. Because
these are not public ratings, they are subject to additional estimation
uncertainty.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and sensitivity
analysis, see the sections Methodology Assumptions and Sensitivity
to Assumptions of the disclosure form.
The analysis relies on an assessment of collateral characteristics to
determine the collateral loss distribution, that is, the function
that correlates to an assumption about the likelihood of occurrence to
each level of possible losses in the collateral. As a second step,
Moody's evaluates each possible collateral loss scenario using a
model that replicates the relevant structural features to derive payments
and therefore the ultimate potential losses for each rated instrument.
The loss a rated instrument incurs in each collateral loss scenario,
weighted by assumptions about the likelihood of events in that scenario
occurring, results in the expected loss of the rated instrument.
Moody's quantitative analysis entails an evaluation of scenarios
that stress factors contributing to sensitivity of ratings and take into
account the likelihood of severe collateral losses or impaired cash flows.
Moody's weights the impact on the rated instruments based on its
assumptions of the likelihood of the events in such scenarios occurring.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security 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 credit rating action on the
support provider and in relation to each particular credit 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 credit rating action,
and whose ratings may change as a result of this credit 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.
Veronica Shim
Associate Lead Analyst
Structured Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Oktay Veliev, CFA
Senior Vice President/Manager
Structured Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
