New York, March 20, 2019 -- Moody's Investors Service has upgraded the ratings on the following notes
issued by Preferred Term Securities XII, Ltd.:
U.S.$64,000,000 Floating Rate Class A-2
Senior Notes Due December 24, 2033, Upgraded to Aaa (sf);
previously on December 19, 2016 Affirmed Aa1 (sf)
U.S.$10,000,000 Fixed/Floating Rate Class
A-3 Senior Notes Due December 24, 2033, Upgraded to
Aaa (sf); previously on December 19, 2016 Affirmed Aa1 (sf)
U.S.$17,000,000 Fixed/Floating Rate Class
A-4 Senior Notes Due December 24, 2033, Upgraded to
Aaa (sf); previously on December 19, 2016 Affirmed Aa1 (sf)
Preferred Term Securities XII, Ltd., issued in December
2003, 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 and an increase in the transaction's over-collateralization
(OC) ratios since March 2018.
The Class A-1 notes have paid down by approximately 33.5%
or $35.6 million since March 2018, using principal
proceeds from the redemption of the underlying assets and the diversion
of excess interest proceeds. Based on Moody's calculations,
the OC ratio for the Class A notes has improved to 232.89%
from the March 2018 level of 204.9%. Moody's
gave full par credit in its analysis to one deferring asset with $3
million of par that meets certain criteria. Two previously deferring
banks with a total par of $10.5 million have resumed making
interest payments on their TruPS; six banks with a total par of $37.7
million have redeemed at par. 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.
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:
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: 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.
Moody's obtained a loss distribution for this CDO's portfolio by simulating
defaults using Moody's CDOROM™, which used Moody's assumptions
for asset correlations and fixed recoveries in a Monte Carlo simulation
framework. Moody's then used the resulting loss distribution,
together with structural features of the CDO, as an input in its
CDOEdge™ cash flow model.
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 $376.8 million, defaulted par of $110.6
million, a weighted average default probability of 5.3%
(implying a WARF of 546), 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.
The portfolio of this CDO contains TruPS issued by small to medium sized
U.S. community banks 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.
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 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.
Monica Chau
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
VP - Senior Credit Officer
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
