Moody's also affirms the rating on $16.4 million of notes
New York, February 05, 2014 -- Moody's Investors Service has upgraded the ratings on the following notes
issued by Trapeza CDO IV, LLC:
U.S. $95,000,000 Class A1B Second Priority
Senior Secured Floating Rate Notes due May 24, 2034, Upgraded
to Aa1 (sf); previously on July 22, 2013 Upgraded to Aa2 (sf)
U.S. $33,000,000 Class B Third Priority
Senior Secured Floating Rate Notes due May 24, 2034, Upgraded
to Aa2 (sf); previously on July 22, 2013 Upgraded to A2 (sf)
U.S. $44,500,000 Class C-1 Fourth
Priority Secured Floating Rate Notes Due May 24, 2034 (current outstanding
balance of $51,514,065, including deferred interest),
Upgraded to Caa3 (sf); previously on November 12, 2008 Downgraded
to Ca (sf)
U.S. $44,500,000 Class C-2 Fourth
Priority Secured Fixed/Floating Rate Notes Due May 24, 2034 (current
outstanding balance of $51,645,689, including
deferred interest), Upgraded to Caa3 (sf); previously on November
12, 2008 Downgraded to Ca (sf)
U.S.$14,000,000 Class D Mezzanine Secured
Floating Rate Notes Due May 24, 2034 (current outstanding balance
of $11,778,139, including deferred interest),
Upgraded to Ca (sf); previously on November 12, 2008 Downgraded
to C (sf)
Moody's also affirmed the rating on the following notes:
U.S. $145,000,000 Class A1A First Priority
Senior Secured Floating Rate Notes due May 24, 2034 (current balance
of $16,361,303), Affirmed Aaa (sf); previously
on July 22, 2013 Upgraded to Aaa (sf)
Trapeza CDO IV, LLC, issued in October 2013, is a collateralized
debt obligation backed by a portfolio of bank trust preferred securities
(TruPS).
RATINGS RATIONALE
The rating actions taken today are primarily a result of the deleveraging
of the Class A1A notes, an increase in the transaction's over-collateralization
ratios and resumptions of interest payments on previously deferring assets
since the last rating action in July 2013.
The Class A1A notes have been paid down by approximately 22.0%
or $4.6 million since July 2013 from diversion of excess
interest proceeds. Further, $12 million of cash in
the principal collections account, originating from redemptions
of two assets, will be used to paydown the Class A1A notes on the
next payment date. The par coverage for the Class A1A notes has
thus improved to 186.3% from 154.7% since
July 2013 by Moody's calculations. Based on the trustee's
January 2014 report, the over-collateralization (OC) ratio
of the Class A and B notes was 144.8% (limit 141.5%),
versus 121.9% in June 2013, and that of the Class
C and D notes, 80.6% (limit 102.0%),
versus 69.2% in June 2013. The Class A1A notes will
continue to benefit from the diversion of excess interest and the use
of proceeds from future redemptions of any of the assets in the collateral
pool. Because the A/B OC ratio is no longer in breach of its limit,
Moody's expects that the Class C and D notes, which have been
deferring interest since November 2008, will likely start to receive
current interest payments, so long as the A/B OC ratio continues
to satisfy the limit.
In addition, the total par amount that Moody's treated as
having defaulted or deferring declined to $80.7 million
from $108.7 million on July 2013. Since July 2013,
three previously deferring banks with a total par of $28.0
million have resumed making interest payments on their TruPS; two
assets with a total par of $12.0 million have redeemed at
par. The credit quality of the underlying portfolio has deteriorated
slightly since the last rating action. Based on Moody's calculations,
the weighted average rating factor (WARF) increased to 787 from 719 in
July 2013.
The actions on the Class A1B and Class B notes also reflect corrections
to the weighted average spread and the target rating hurdle used in the
July 2013 rating action. Due to an input error, Moody's
overstated the weighted average spread and also evaluated a target rating
hurdle for the Class B notes that was one notch higher than appropriate.The
forementioned errors have been corrected and today's rating action
reflects these corrections.
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 of $207.5 million, defaulted/deferring
par of $80.7 million, a weighted average default probability
of 17.47% (implying a WARF of 787), a Moody's
Asset Correlation of 19.53%, and a weighted average
recovery rate upon default of 10.0%. 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 TRUP CDOs," published in May 2011. 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 currently expects could
have a positive impact on the transaction's performance.
Conversely, asset credit performance weaker than Moody's currently
expects 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. Faster deleveraging than
Moody's expects could have a significant impact on the notes'
ratings.
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.
Moody's evaluates the sensitivity of the ratings of the notes to the volatility
of these credit assessments.
Loss and Cash Flow Analysis
Moody's modeled the transaction's portfolio using CDOROM™
v.2.10.15 to develop the default distribution from
which it derives the Moody's Asset Correlation parameter. Moody's
then used the parameter as an input in a cash flow model using CDOEdge.
CDOROM™ v.2.10.15 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 trust preferred securities (TruPS)
issued by small to medium sized U.S. community banks and
insurance companies 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 KMV, to derive credit scores. Moody's evaluation
of the credit risk of most of the bank obligors in the pool relies on
FDIC Q3-2013 financial data.
In addition to the base case, Moody's conduct a number of sensitivity
analyses of the results to certain key factors driving the ratings.
Moody's analyzed the sensitivity of the model results to changes
in the portfolio WARF (representing an improvement or deterioration in
the credit quality of the collateral pool). Increasing the WARF
by 133 points from the base case of 787 lowers the model-implied
rating on the Class A1B notes by one notch from the base case result;
decreasing the WARF by 187 points raises the model-implied rating
on the Class A1B notes by one notch from the base case result.
Moody's also conducted an additional sensitivity analyses, as described
in "Sensitivity Analyses on Deferral Cures and Default Timing for Monitoring
TruPS CDOs," published in August 2012. In the analysis,
Moody's 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 of the rated notes (in terms of the difference in
the number of notches versus the current model-implied output,
in which a positive difference corresponds to a lower expected loss):
Sensitivity Analysis : Alternative Default Timing Profile
Class A1A: 0
Class A1B: 0
Class B: 0
Class C-1: +1
Class C-2: +1
Class D: 0
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 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.
The analysis includes an assessment of collateral characteristics and
performance to determine the expected collateral loss or a range of expected
collateral losses or cash flows to the rated instruments. As a
second step, Moody's estimates expected collateral losses or cash
flows using a quantitative tool that takes into account credit enhancement,
loss allocation and other structural features, to derive the expected
loss for each rated instrument.
Moody's describes its loss and cash flow analysis in the section
"Ratings Rationale" of this press release.
As the section on loss and cash flow analysis describes, 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.
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
Min Xu
VP - Sr Credit Officer/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 $242.9 million of TruPS CDO notes issued by Trapeza CDO IV, LLC
