Moody's also affirms the ratings on $11.5 million of notes
New York, July 27, 2015 -- Moody's Investors Service has upgraded the ratings on the following notes
issued by Trapeza CDO II, LLC:
U.S. $27,000,000 Class B Third Priority
Senior Secured Floating Rate Notes due 2033, Upgraded to Aaa (sf);
previously on August 18, 2014 Affirmed Aa1 (sf)
U.S. $43,500,000 Class C-1 Fourth
Priority Secured Floating Rate Notes due 2033 (current balance of $47,069,223
including deferred interest balance), Upgraded to Ba2 (sf);
previously on August 18, 2014 Upgraded to B3 (sf)
U.S. $54,800,000 Class C-2 Fourth
Priority Secured Fixed/Floating Rate Notes due 2033 (current balance of
$59,296,400 including deferred interest balance),
Upgraded to Ba2 (sf); previously on August 18, 2014 Upgraded
to B3 (sf)
U.S. $18,700,000 Class D Mezzanine Secured
Floating Rate Notes due 2033 (current balance of $15,987,884
including deferred interest balance), Upgraded to Caa3 (sf);
previously on November 12, 2008 Downgraded to Ca (sf)
Moody's also affirmed the ratings on the following notes:
U.S. $100,000,000 Class A1B Second Priority
Senior Secured Floating Rate Notes due 2033 (current balance of $11,510,220),
Affirmed Aaa (sf); previously on August 18, 2014 Affirmed Aaa
(sf)
Trapeza CDO II, LLC, issued in March 2003, is a collateralized
debt obligation backed by a portfolio of bank trust preferred securities
(TruPS).
RATINGS RATIONALE
These rating actions are due primarily to the deleveraging of the senior
notes and an increase in the transaction's over-collateralization
(OC) ratios. The Class A1B notes have paid down by approximately
59% or $16.6 million since December 2014, using
$15.1 million of principal proceeds from the redemption
of a performing asset and recoveries from defaulted assets, as well
as the diversion of excess interest proceeds. Moody's also
gave full par credit in its base case analysis to one deferring asset
that met certain criteria, totaling $13.3 million
in par. As a result, the Class B notes' par coverage
has improved to 408.8% from 276.1% since December
2014, by Moody's calculations. Based on the trustee's
June 2015 report, the OC ratio of the Class B notes was 373.1%
(limit 150.5%), versus 275.5% in December
2014 and that of the Class D notes, 89.3% (limit 104.0%),
versus 85.5% in December 2014. The Class C-1,
C-2 and D notes are receiving current interest payments,
but continue to carry a deferred interest balance, because of the
ongoing failure of the Class D OC test.
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 has having a performing par and
principal proceeds balance (after treating deferring securities as performing
if they meet certain criteria) of $157.4 million,
defaulted/deferring par of $51.2 million, a weighted
average default probability of 6.8% (implying a WARF of
618), and a weighted average recovery rate upon default of 10%.
In addition to the quantitative factors Moody's explicitly models,
qualitative factors are part of rating committee considerations.
Moody's considers the structural protections in the transaction,
the risk of 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, can influence
the final rating decision.
Methodology Underlying the Rating Action
The principal methodology used in this rating was "Moody's Approach to
Rating TruPS CDOs," published in June 2014. Please see the
Credit Policy page on www.moodys.com for a copy of this
methodology.
Factors that Would Lead to an Upgrade or Downgrade of the Rating:
This transaction is subject to a number of factors and circumstances that
could lead to either an upgrade or downgrade of the ratings, as
described below:
1) Macroeconomic uncertainty: TruPS CDOs performance could be negatively
affected by uncertainty about credit conditions in the general economy.
Moody's has a stable outlook on the US banking sector.
2) Portfolio credit risk: Credit performance of the assets collateralizing
the transaction that is better than Moody's current expectations
could have a positive impact on the transaction's performance.
Conversely, asset credit performance weaker than Moody's current
expectations could have adverse consequences on the transaction's
performance.
3) Deleveraging: One source of uncertainty in this transaction is
whether deleveraging from unscheduled principal proceeds and excess interest
proceeds will continue and at what pace. Note repayments that are
faster than Moody's current expectations could have a positive impact
on the notes' ratings, beginning with the notes with the highest
payment priority.
4) Resumption of interest payments by deferring assets: A number
of banks have resumed making interest payments on their TruPS.
The timing and amount of deferral cures could have significant positive
impact on the transaction's over-collateralization ratios and the
ratings on the notes.
5) Exposure to non-publicly rated assets: The deal contains
a large number of securities whose default probability Moody's assesses
through credit scores derived using RiskCalc™ or credit estimates.
Because these are not public ratings, they are subject to additional
uncertainties.
Loss and Cash Flow Analysis:
Moody's applied a Monte Carlo simulation framework in Moody's
CDOROM™ v.2.15 to model the loss distribution for
TruPS CDOs. The simulated defaults and recoveries for each of the
Monte Carlo scenarios defined the reference pool's loss distribution.
Moody's then used the loss distribution as an input in its CDOEdge™
cash flow model. CDOROM™ v. 2.15 is available
on www.moodys.com under Products and Solutions --
Analytical models, upon receipt of a signed free license agreement.
The portfolio of this CDO contains [mainly] TruPS issued by medium
sized U.S. community that Moody's does not rate publicly.
To evaluate the credit quality of bank TruPS that do not have public ratings,
Moody's uses RiskCalc™, an econometric model developed by
Moody's Analytics, to derive credit scores. Moody's evaluation
of the credit risk of most of the bank obligors in the pool relies on
FDIC Q1-2015 financial data.
In addition to the base case analysis, Moody's also conducted sensitivity
analyses to test the impact of a number of default probabilities on the
rated notes relative to the base case modeling results, which may
be different from the current public ratings of the notes. Below
is a summary of the impact of different default probabilities (expressed
in terms of WARF) on all of the rated notes (by the difference in the
number of notches versus the current model output, for which a positive
difference corresponds to lower expected loss):
Assuming a two-notch upgrade to assets with below-investment
grade ratings or rating estimates (WARF of 355)
Class A1B: 0
Class B: 0
Class C-1: +2
Class C-2: +2
Class D: +2
Assuming a two-notch downgrade to assets with below-investment
grade ratings or rating estimates (WARF of 992)
Class A1B: 0
Class B: 0
Class C-1: -2
Class C-2: -2
Class D: -1
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.
Moody's describes its loss and cash flow analysis in the section
"Ratings Rationale" of this press release.
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 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.
Simran Sangari
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
Min Xu
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 on $149.4 million of TruPS CDO notes issued by Trapeza CDO II, LLC
