New York, July 31, 2017 -- Moody's Investors Service has upgraded the ratings on the following notes
issued by Alesco Preferred Funding XIII, Ltd.:
U.S.$250,800,000 Class A-1 First
Priority Senior Secured Floating Rate Notes Due 2037 (current balance
of $152,828,137.98), Upgraded to Aa1 (sf);
previously on May 15, 2015 Upgraded to Aa3 (sf)
U.S.$55,200,000 Class A-2 Second
Priority Senior Secured Floating Rate Notes Due 2037, Upgraded to
Aa3 (sf); previously on May 15, 2015 Upgraded to A1 (sf)
U.S.$80,000,000 Class B Deferrable Third
Priority Secured Floating Rate Notes Due 2037, Upgraded to Ba2 (sf);
previously on May 15, 2015 Upgraded to B1 (sf)
Alesco Preferred Funding XIII, Ltd. issued in November 2006,
is a collateralized debt obligation backed by a portfolio of bank and
insurance 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 resumption of interest payments of previously deferring
assets since March 2016.
The Class A-1 notes have paid down by approximately 2.8%
or $4.4 million since March 2016, using principal
proceeds from the redemption of the underlying assets. Additionally,
the total par amount that Moody's treated as having defaulted or
deferring declined to $15 million from $30 million in March
2016. Since then, two previously deferring banks with a total
par of $6.5 million have resumed making interest payments
on their TruPS; three assets with a total par of $12.0
million have redeemed at par. Based on Moody's calculations,
the OC ratios for the Class A-1, A-2, B,
and C notes have improved to 208.42%, 153.12%,
110.59%, and 88.91%, respectively,
from July 2016 levels of 205.28%, 151.93%,
110.37% and 88.22%, respectively.
Methodology Underlying the Rating Action:
The principal methodology used in these ratings was "Moody's Approach
to Rating TruPS CDOs" published in October 2016. 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:
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. Moody's
maintains its stable outlook on the US insurance 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.
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 509)
Class A-1: 0
Class A-2: +2
Class B: +2
Class C-1: +1
Class C-2: +1
Assuming a two-notch downgrade to assets with below-investment
grade ratings or rating estimates (WARF of 1299)
Class A-1: -1
Class A-2: -1
Class B: -3
Class C-1: 0
Class C-2: 0
Loss and Cash Flow Analysis:
Moody's applied a Monte Carlo simulation framework in Moody's
CDOROM™ 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™ is available on www.moodys.com
under Products and Solutions -- Analytical models,
upon receipt of a signed free license agreement.
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 of
$318.5 million, defaulted/deferring par of $15
million, a weighted average default probability of 9.15%
(implying a WARF of 826), 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.
The portfolio of this CDO contains mainly 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 Analytics, to derive credit
scores. Moody's evaluation of the credit risk of most of the bank
obligors in the pool relies on the latest FDIC financial data.
For insurance TruPS that do not have public ratings, Moody's relies
on the assessment of its Insurance team, based on the credit analysis
of the underlying insurance firms' annual statutory financial reports.
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 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.
Diana Situ
Associate 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
Min Xu
Associate Managing Director
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
