Approximately USD 220 million of debt securities affected
New York, July 26, 2013 -- Moody's Investors Service announced today that it has upgraded the ratings
on the following notes issued by Alesco Preferred Funding I, Ltd.:
U.S.$149,000,000 Class A-1 First
Priority Senior Secured Floating Rate Notes Due October 15, 2033
(current balance of $47,128,137.05), Upgraded
to Aa1 (sf); previously on September 27, 2012 Upgraded to Aa3
(sf)
U.S.$66,000,000 Class A-2 Second
Priority Senior Secured Floating Rate Notes Due October 15, 2033,
Upgraded to Aa3 (sf); previously on September 27, 2012 Upgraded
to A2 (sf)
U.S.$56,700,000 Class B-1 Mezzanine
Secured Floating Rate Notes Due October 15, 2033 (current balance
of $59,716,774.64, including deferring
interest), Upgraded to Caa2 (sf); previously on September 27,
2012 Upgraded to Ca (sf)
U.S.$45,000,000 Class B-2 Mezzanine
Secured Fix/Floating Rate Notes Due October 15, 2033 (current balance
of $47,394,265.57), Upgraded to Caa2 (sf);
previously on September 27, 2012 Upgraded to Ca (sf)
RATINGS RATIONALE
According to Moody's, the rating actions taken on the notes
are primarily a result of deleveraging of the Class A-1 Notes,
an increase in the transaction's overcollateralization ratios as
well as the improvement in the credit quality of the underlying portfolio
as measured by the weighted average rating factor (WARF). The deleveraging
is due to diversion of excess interest after paying interest on the Class
A-1, A-2, B-1 and B-2 Notes and
the redemption of performing and deferring assets.
Moody's notes that the Class A-1 Notes have been paid down
by approximately 41.76% or $33.78 million
since last rating action, due to diversion of excess interest proceeds
and disbursement of principal proceeds from redemptions of underlying
assets. As a result of this deleveraging, the Class A-1
notes' par coverage improved to 409.15% from 247.94%
since the last rating action, as calculated by Moody's.
Based on the latest trustee report dated July 15, 2013, the
Senior Principal Coverage Ratio and Senior Subordinate Principal Coverage
Ratio are reported at 168.92% (limit 125.00%)
and 87.68% (limit 105.57%) respectively,
versus the August 31, 2012 levels of 137.09% and 79.47%
respectively. Going forward, the Class A-1 notes will
continue to benefit from the diversion of excess interest and the proceeds
from future redemptions of any assets in the collateral pool.
Moody's also notes that the deal benefited from an improvement in the
credit quality of the underlying portfolio. Based on Moody's
calculation, the weighted average rating factor (WARF) improved
to 804 compared to 1103 as of September 2012. The total par amount
that Moody's treated as defaulted or deferring declined to $15
million compared to $39 million as of the last rating action date.
Moody's notes that the key model inputs used by Moody's in its analysis,
such as par, weighted average rating factor and weighted average
recovery rate, are based on its published methodology and may be
different from the trustee's reported numbers. In its base case,
Moody's analyzed the underlying collateral pool to have a performing
par of $192.8 million, defaulted/deferring par of
$15 million, a weighted average default probability of 17.71%
(implying a WARF of 804), Moody's Asset Correlation of 21.16%,
and a weighted average recovery rate upon default of 10.00%.
In addition to the quantitative factors that are explicitly modeled,
qualitative factors are part of rating committee considerations.
Moody's considers the structural protections in the transaction,
the risk of triggering 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,
may influence the final rating decision.
Alesco Preferred Funding I, Ltd., issued on September
25, 2003, is a collateralized debt obligation backed by a
portfolio of bank trust preferred securities.
The portfolio of this CDO is mainly comprised of trust preferred securities
(TruPS) issued by small to medium sized U.S. community banks
that are generally not publicly rated by Moody's. To evaluate the
credit quality of bank TruPS without public ratings, Moody's uses
RiskCalc model, an econometric model developed by Moody's KMV,
to derive their credit scores. Moody's evaluation of the credit
risk for a majority of bank obligors in the pool relies on FDIC financial
data reported as of Q1-2013.
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.
Moody's also evaluates the sensitivity of the rated transaction to the
volatility of the credit estimates, as described in Moody's Cross
Sector Rating Methodology "Updated Approach to the Usage of Credit Estimates
in Rated Transactions" published in October 2009.
The transaction's portfolio was modeled using CDOROM v.2.8
to develop the default distribution from which the Moody's Asset Correlation
parameter was obtained. This parameter was then used as an input
in a cash flow model using CDOEdge. CDOROM v.2.8
is available on moodys.com under Products and Solutions --
Analytical models, upon return of a signed free license agreement.
Moody's performed a number of sensitivity analyses of the results to certain
key factors driving the ratings. We analyzed the sensitivity of
the model results to changes in the portfolio WARF (representing an improvement
or a deterioration in the credit quality of the collateral pool),
assuming that all other factors are held equal. If the WARF is
increased by 446 points from the base case of 804, the model-implied
rating of the Class A-1 notes is one notch worse than the base
case result. Similarly, if the WARF is decreased by 304 points,
the model-implied rating of the Class A-1 notes is one notch
better than the base case result.
In addition, Moody's also performed one additional sensitivity analysis
as described in the Special Comment "Sensitivity Analyses on Deferral
Cures and Default Timing for Monitoring TruPS CDOs" published in August
2012. In the sensitivity analysis, we 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 rated notes (shown
in terms of the number of notches' difference versus the current model
output, where a positive difference corresponds to lower expected
loss), assuming that all other factors are held equal:
Sensitivity Analysis:
Class A-1: 0
Class A-2: 0
Class B-1: 0
Class B-2: 0
Moody's notes that this transaction is subject to a high level of macroeconomic
uncertainty, as our outlook on the banking sector has change to
stable from negative. The pace of FDIC bank failures continues
to decline in 2013 compared to the last four previous years, and
some of the previously deferring banks have resumed interest payment on
their trust preferred securities.
Further information on Moody's analysis of this transaction is available
on www.moodys.com.
REGULATORY DISCLOSURES
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.
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
Rodrigo Araya
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 TruPS CDO notes issued by Alesco Preferred Funding I, Ltd.
