Fitch Takes Various Actions on 18 Trust Preferred CDOs

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has taken the following rating actions on tranches from 18 Collateralized Debt Obligations (CDOs) backed primarily by Trust Preferred (TruPS) securities issued by banks:

--Affirmed 55 tranches;

--Upgraded 16 tranches;

--Downgraded three tranches;

--Assigned various Rating Outlooks.

The key rating factors for today's rating actions are highlighted below.

KEY RATING DRIVERS:

Credit Quality of Collateral: For most of the transactions, the credit quality of the collateral portfolios, as measured by a combination of Fitch's bank scores and ratings, remained stable or improved. As reported in the rating action report, in 14 CDOs average credit quality has improved since last review. Five transactions experienced new deferrals and/or defaults, with all of new defaults deferring at last review.

Collateral Redemptions: Thirteen 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 shown in the 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.

Excess Spread and CDO Structure: Excess spread continued to contribute to deleveraging of 13 CDOs from either Optimal Principal Distribution Amount (OPDA) or failing coverage tests. In one transaction, Preferred Term Securities XIV, the excess spread is currently paying down the capitalized interest on class B notes. The additional CE provided an uplift of varying magnitude to the passing ratings, from none to a maximum of three notches in these 13 transactions. Given that the base line of excess spread received a bigger haircut in higher rating stresses, notes rated at high investment-grade levels received less credit from projected future excess spread. Therefore, the impact was in general more significant for notes rated below investment grade. Fitch estimates future levels of excess spread as described in the criteria 'Surveillance Criteria for TruPS CDOs,' dated April 21, 2015.

Resolution and Recovery of Defaults and Deferrals: The number of cures continued to trend upward, as Fitch reports in its quarterly Fitch Bank TruPS CDO index. Fitch assesses the likelihood of a cure for a current deferral based on the score history of a deferring issuer since deferral, as described in its criteria. Currently deferring issuers defined as 'strong' are assigned a higher likelihood of curing than 'weak' deferrals. Fitch has observed 12 issuers in seven CDOs to re-defer, whereby they paid their cumulative deferred interest and reset their deferral dates. These re-deferrals represent an average of 3% in each CDO's total portfolio balance. These deferrals are considered weak in Fitch's analysis.

The key rating drivers highlighted above are incorporated in Fitch's TruPS model. The ratings on some notes passing at a high investment grade level were capped below their passing rating level, as indicated in the report under 'Rating Rationale', due to portfolio concentration and expected long-term horizon for the notes' paydown that can result in rating volatility that Fitch views as inconsistent with the high investment-grade rating.

RATING SENSITIVITIES

Changes in the rating drivers described above 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.

To account for uncertainty around the pace of redemptions and cures and, consequently, magnitude of future excess spread, Fitch's rating analysis capped the levels of excess spread to the amounts projected only over the near term.

For non-deferrable notes, Fitch performs analysis of notes' interest sensitivity to additional defaults and deferrals, as described in the criteria. 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.

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

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

Applicable Criteria and Related Criteria:

-- Global Structured Finance Rating Criteria (March 31, 2015)

--'Surveillance Criteria for Trust Preferred CDOs' (April 21, 2015);

--'Global Rating Criteria for Corporate CDOs' (July 2014);

--'Counterparty Criteria for Structured Finance and Covered Bonds' (May 14, 2014);

--'Criteria for Rating Caps and Limitations in Global Structured Finance Transactions (May 2014).

Applicable Criteria and Related Research: Fitch Takes Various Actions on 18 Trust Preferred CDOs

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=865862

Criteria for Rating Caps and Limitations in Global Structured Finance Transactions

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=748781

Counterparty Criteria for Structured Finance and Covered Bonds

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

Global Rating Criteria for Corporate CDOs

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=753057

Surveillance Criteria for Trust Preferred CDOs

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=864352

Global Structured Finance Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=864268

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=984316

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.

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

Source: Fitch Ratings

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