Fitch Downgrades All Classes of Non-Profit Preferred Funding Trust I

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has downgraded all classes, revised the Rating Outlooks on three classes, and maintained the Recovery Estimates (RE) for two classes of certificates of Non-Profit Preferred Funding Trust I (NPPF I). A detailed list of rating actions follows at the end of this release.

KEY RATING DRIVERS

Since Fitch's last rating action in March 2015, the portfolio has experienced a net negative credit migration, with downgrades in either the public ratings or Fitch's point-in-time credit opinions, outpacing upgrades. The average credit quality has deteriorated to 'B-' from 'B+/B' at last review.

NPPF I's portfolio balance has decreased by approximately $4.8 million to $148.9 million, or 37% of the initial portfolio size, as per the February 2016 trustee report, compared to Fitch's last rating action. Regularly scheduled amortizations accounted for $2.3 million of the total principal amortization, while the remaining $2.5 million of paydowns yielded from a partial recovery (36%) of one defaulted security. The proceeds were then used to amortize the class A certificates, which over the last payment date received approximately $5.2 million, or 7% of their collective balance at last review, in principal repayments, due to the amortization and excess spread diverted to cure the failing class D Coverage Test.

Presently, the pool comprises debt of 16 obligors, of which 13 are considered by Fitch as performing, compared to 15 and 12, respectively, at last review. Only 16% of the portfolio is carrying investment grade public rating or credit opinion-equivalent of investment grade. The cumulative exposure to defaulted securities now stands at 20.3%, compared to 27.1% at last review. The lower exposure to defaulted assets is the result of one obligor that fully recovered from default.

In evaluating the notes, Fitch applied the analytical framework described in the report 'Global Rating Criteria for CLOs and Corporate CDOs' using corporate PCM for projecting future default levels and performing a cash flow modelling analysis for the notes to measure the breakeven levels under the various default timing and interest rate stress scenarios. Fitch adjusted the assumptions for correlation and recovery estimates from the 'Global Rating Criteria for CLOs and Corporate CDOs' to account for the high intra-state correlation in the portfolio. For the defeased assets, Fitch used the first call date as their expected maturity date.

The ratings and outlooks for all classes of certificates reflect the range of breakeven results from the cash flow model. Fitch does not assign Outlooks to classes rated 'CCCsf' and lower. Fitch has maintained the previously assigned Recovery estimates (REs) on the class C and D certificates reflecting minimal change in recovery expectations from defaulted assets.

NPPF I is a Structured Tax-Exempt Pass-Through (STEP) program formed in November 2006 to issue $416.5 million of municipal market data (MMD) index-based senior, mezzanine, and junior certificates. The proceeds of the issuance were invested in a portfolio of municipal debt issued under the 501(c)(3) program. The initial portfolio was selected by Cohen Municipal Capital Management, LLC together with sub-advisors Nonprofit Capital LLC and Shattuck Hammond. In March 2009, Muni Capital Management, LLC took over the management responsibilities for this transaction by consolidating the team of Cohen Municipal Capital Management, LLC.

RATING SENSITIVITIES

Given the high degree of portfolio concentration in this transaction, the risk of adverse selection could negatively impact the ratings. Any significant collateral quality deterioration could lead to further downgrades of the ratings for the certificates.

DUE DILIGENCE USAGE

No third-party due diligence was provided or reviewed in relation to this rating action.

Fitch has downgraded all classes and revised the Rating Outlooks as indicated:

--$20,044,974 class A-1 senior certificates to 'BBsf' from 'BBBsf'; Outlook to Stable from Negative;

--$51,075,038 class A-2 delayed issuance senior certificates to 'BBsf' from 'BBBsf'; Outlook to Stable from Negative;

--$16,500,000 class B senior certificates to 'Bsf' from 'BBsf'; Outlook to Stable from Negative;

--$22,000,000 class C mezzanine certificates to 'CCsf' from 'CCCsf'; RE 20%;

--$14,000,000 class D subordinated certificates to 'Csf' from 'CCsf'; RE 0%.

Fitch does not rate class E junior certificates.

Additional information is available at www.fitchratings.com.

Sources of Information:

The information used to assess these ratings was sourced from the asset manager, periodic trustee reports, note valuation reports, and the public domain.

Applicable Criteria

Counterparty Criteria for Structured Finance and Covered Bonds (pub. 14 May 2014)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=744158

Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds (pub. 19 Dec 2014)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=838868

Global Rating Criteria for CLOs and Corporate CDOs (pub. 12 Nov 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=873664

Global Structured Finance Rating Criteria (pub. 06 Jul 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=867952

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1000667

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1000667

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

View source version on businesswire.com: http://www.businesswire.com/news/home/20160309006219/en/

Fitch Ratings
Surveillance Analyst
Azadeh Sharif
Director
+1-212-908-0874
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Todor Sapundzhiev
Analyst
+1-312-368-3198
or
Committee Chairperson
Alina Pak, CFA
Senior Director
+1-312-368-3184
or
Media Relations
Sandro Scenga, +1 212-908-0278
[email protected]

Source: Fitch Ratings

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