Fitch Takes Various Actions on 11 Trust Preferred CDOs

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has affirmed 79, upgraded eight, downgraded three, and revised or assigned Rating Outlooks on nine tranches from 11 collateralized debt obligations (CDOs) backed primarily by Trust Preferred (TruPS) securities issued by banks and insurance companies.

KEY RATING DRIVERS

Credit Quality of Collateral: In 11 transactions, the credit quality of the collateral portfolios, as measured by a combination of Fitch's bank scores and ratings, remained stable or improved. Five transactions reported new deferrals or defaults since last review.

Collateral Redemptions: Eight CDOs received various levels of redemptions that paid down the senior-most notes and increased credit enhancement (CE) levels for rated liabilities. The magnitude of redemptions for each CDO is reported in the accompanying rating action report. Potential upgrades were weighed against the risk of adverse selection in the remaining portfolios, especially those concentrated in fewer performing issuers, and considered in the context of the likely time horizon for the notes' paydown.

Resolution and Recovery of Defaults and Deferrals: In five transactions the number of cures continued to outpace deferrals and defaults, as Fitch reports in its monthly Fitch Bank TruPS CDO Default and Deferral Index report. Fitch assesses the likelihood of a cure for a current deferral based on the score history of a deferring issuer since deferral.

Fitch assumes that 15% of recent cures, defined as curing within the last year, re-defer and are considered weak deferrals to account for observed re-deferrals by some issuers. The percentage of cures since last review for each CDO is reported in the accompanying rating action report.

CDO Structure: Excess spread continued to contribute to deleveraging of eight CDOs due to either failing coverage tests or acceleration in the case of one CDO. In the remaining three CDOs, excess spread will be paying down capitalized interest on mezzanine notes. The uplift from the excess spread ranged from none to four notches. For non-deferrable notes, Fitch performs analysis of the notes' interest sensitivity to additional defaults and deferrals. Ratings for non-deferrable notes are capped at the rating stress level corresponding to the magnitude of additional defaults and deferrals that could trigger a missed interest payment.

Performing CE Cap: The ratings on 44 classes of notes across all 11 transactions have been capped at their current rating level due to the application of performing CE cap as described in Surveillance Criteria for Trust Preferred CDOs.

Fitch has downgraded the ratings on classes A-2 and A-3 in Preferred Term Securities XV Ltd./Inc. and the class B notes in Preferred Term Securities XIX Ltd./Inc. one rating category as their performing CE was below a minimum threshold defined by the criteria for their current rating category.

RATING SENSITIVITIES

Changes in the rating drivers could lead to rating changes in the TruPS CDO notes. To address potential risks of adverse selection and increased portfolio concentration Fitch applied a sensitivity scenario, as described in the criteria.

DUE DILIGENCE USAGE

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

Additional information is available at www.fitchratings.com.

Sources of Information:

The information used to assess these ratings was sourced from trustee reports, collateral manager reporting web sites and the public domain.

Fitch Takes Various Actions on 11 Trust Preferred CDOs

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=883042

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

Global Rating Criteria for CLOs and Corporate CDOs (pub. 09 Jun 2016)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=882840

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

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

Surveillance Criteria for Trust Preferred CDOs (pub. 05 Apr 2016)

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

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1005912

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1005912

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/20160610005781/en/

Fitch Ratings
Primary Analyst
Todor Sapundzhiev
Analyst
+1-312-368-3198
Fitch Ratings, Inc.
70 West Madison St.
Chicago, IL 60602
or
Committee Chairperson
Alina Pak
Senior Director
+1-312-368-3184
or
Media Relations:
Sandro Scenga, New York, +1 212-908-0278
Email: [email protected]

Source: Fitch Ratings

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