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Rating Action:

Moody's upgrades the ratings on $315.4 million of TruPS CDO notes issued by Alesco Preferred Funding X, Ltd.

13 Jun 2022

New York, June 13, 2022 -- Moody's Investors Service ("Moody's") has upgraded the ratings on the following notes issued by Alesco Preferred Funding X, Ltd.:  

U.S.$489,000,000 Class A-1 First Priority Senior Secured Floating Rate Notes Due 2036 (the "Class A-1 Notes"), Upgraded to Aaa (sf); previously on February 5, 2018 Upgraded to Aa1 (sf)

U.S.$119,500,000 Class A-2A Second Priority Senior Secured Floating Rate Notes Due 2036 (the "Class A-2A Notes"), Upgraded to Aa2 (sf); previously on February 5, 2018 Upgraded to Aa3 (sf)

U.S.$10,000,000 Class A-2B Second Priority Senior Secured Fixed/Floating Rate Notes Due 2036 (the "Class A-2B Notes"), Upgraded to Aa2 (sf); previously on February 5, 2018 Upgraded to Aa3 (sf)

U.S.$82,000,000 Class B Deferrable Third Priority Secured Floating Rate Notes Due 2036 (the "Class B Notes"), Upgraded to Baa2 (sf); previously on February 5, 2018 Upgraded to Baa3 (sf)

Alesco Preferred Funding X, Ltd., issued in March 2006, is a collateralized debt obligation (CDO) backed mainly 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, full repayment of the Class D deferred interest balance.

The Class A-1 notes have paid down by approximately 30.5% or $46.1 million over the past year, using principal proceeds from the redemption of the underlying assets. Based on Moody's calculations, the OC ratios for the Class A-1, Class A-2 and Class B notes have improved to 431.8%, 193.2% and 143.6%, respectively, from levels a year ago of 330.6%, 177.9% and 138.0%, respectively. Moody's gave full par credit in its analysis to one deferring assets that meet certain criteria, totaling $4.0 million in par. The Class A-1 notes will continue to benefit from the use of proceeds from redemptions of any assets in the collateral pool.  The Class B, Class C, and Class D notes will continue to benefit from the pro rata diversion of excess interest as long as the Class D OC test continues to fail.

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 $452.8 million, defaulted/deferring par of $67.5 million, a weighted average default probability of 13.01% (implying a WARF of 1347), and a weighted average recovery rate upon default of 10%.

In addition to base case analysis, Moody's considered additional scenarios where outcomes could diverge from the base case. The additional scenarios include deteriorating credit quality of the portfolio.

Methodology Used for the Rating Action

The principal methodology used in these ratings was "Moody's Approach to Rating TruPS CDOs" published in July 2021 and available at https://ratings.moodys.com/api/rmc-documents/74076. Alternatively, please see the Rating Methodologies page on https://ratings.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 estimates. 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 in the disclosure form. Moody's Rating Symbols and Definitions can be found on https://ratings.moodys.com/rating-definitions.

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 issuer/deal page for the respective issuer on https://ratings.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.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website https://ratings.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://ratings.moodys.com/documents/PBC_1288235.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on https://ratings.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on https://ratings.moodys.com.

Please see https://ratings.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 issuer/deal page on https://ratings.moodys.com for additional regulatory disclosures for each credit rating.

Diana Situ
Asst Vice President - 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

Amelia (Amy) Tobey
Senior Vice President
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

No Related Data.
© 2022 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE APPLICABLE MOODY’S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY’S CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS (“ASSESSMENTS”), AND OTHER OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY’S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. AND/OR ITS AFFILIATES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT RATINGS, ASSESSMENTS AND OTHER OPINIONS AND PUBLISHES ITS PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.

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MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any credit rating, agreed to pay to MJKK or MSFJ (as applicable) for credit ratings opinions and services rendered by it fees ranging from JPY100,000 to approximately JPY550,000,000.

MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.

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