Fitch Publishes Updated U.S. Surveillance Criteria for Trust Preferred CDOs

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has published an updated rating criteria report for Trust Preferred collateralized debt obligations (TruPS CDOs). This report updates and replaces the prior criteria report titled 'Surveillance Criteria for Trust Preferred CDOs' dated April 21, 2015.

Fitch's rating framework for trust preferred securities has remained broadly consistent over time, with only moderate periodic refinements to reflect changing market circumstances. This report is largely consistent with previous criteria in terms of substance. With this report, however, Fitch has introduced the concept of a performing credit enhancement (CE) cap as one of the key rating drivers in TruPS CDOs analysis. The application of a performing CE cap aims to provide consistency in the levels of performing collateral coverage for notes rated in the same category given a relatively homogeneous nature of underlying collateral and credit quality.

Additionally, Fitch has revised its analytical framework for portfolios with mostly bank collateral and will no longer apply Fitch's Portfolio Credit Model (PCM) to such portfolios. Instead of PCM, the rated portion of the collateral will be analyzed based on corporate probability of default assumptions and multipliers.

The other change in this criteria update incorporates the likelihood of re-deferrals into TruPS CDO analysis for issuers that have cured in the past 12 months. Fitch has observed an emerging trend of issuers curing a previous deferral and then re-deferring. Fitch will assume that 15% of recent cures (within the first year since curing) can re-defer and will be considered weak deferrals at that point.

Fitch expects the cumulative impact of these changes to be limited to three TruPS CDO transactions that could be downgraded by a rating category in the absence of offsetting collateral improvement and deleveraging since last review. Fitch will review these CDOs in the near-term as part of its sector review. The criteria report 'US Surveillance Criteria for Trust Preferred CDOs' is available on the Fitch Ratings website at 'www.fitchratings.com' under the sectors or by clicking on the link.

Additional information is available at 'www.fitchratings.com'.

Surveillance Criteria for Trust Preferred CDOs

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=878874

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View source version on businesswire.com: http://www.businesswire.com/news/home/20160405006623/en/

Fitch Ratings
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Azadeh Sharif
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Fitch Ratings, Inc.
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New York, NY 10004
or
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Alina Pak, CFA
Senior Director
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Source: Fitch Ratings

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