Fitch Takes Various Rating Actions on Six TruPS CDOs
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The following is from Fitch Ratings on
Fitch Ratings has affirmed 28 tranches and upgraded five tranches from six Trust Preferred (TruPS) Collateralized Debt Obligations (CDOs) backed by insurance collaterals. In addition, Fitch has maintained or assigned Stable Outlooks to 17 tranches and assigned Negative Outlooks on two tranches.
The rating action report, titled 'Fitch Takes Various Rating Actions on Six TruPS CDOs', dated
KEY RATING DRIVERS:
Credit Quality of Collateral: The credit quality of the collateral portfolios have been relatively stable with the average credit quality remained at 'BB-/BB' for this year's review. This is supported by relatively stable performance, with only one new deferral held in three CDOs and no new defaults over a 12-month period ending
Collateral Redemptions: All CDOs except for I-Preferred Term Securities I, received meaningful levels of redemptions that paid down the most senior notes and increased credit enhancement (CE) levels for other rated notes. Potential upgrades were weighed against the risk of adverse selection in the remaining portfolios and the likelihood of the remaining balance to be outstanding for an extended period of time.
Excess Spread and CDO Structure: Excess spread continued to contribute to deleveraging of all CDOs except in Insurer Collateralized Obligation Notes (ICONS). The optimal principal distribution amount (OPDA) feature continued to redirect a portion of interest proceeds to pay down the most senior notes in three transactions. However, across these deals, the additional CE from the excess spread did not provide a meaningful uplift to the passing ratings given the haircuts applied to the baseline of excess spread levels for various rating stresses and the outsized interest rate swaps in most of the CDOs.
Resolution and Recovery of Defaults and Deferrals: No cures have occurred in these CDOs.
Fitch has assigned Negative Outlook to the non-deferrable classes in ICONS due to risk of interest shortfall caused by an outsized interest rate swap and 34 percent of the portfolio notional represented by semiannual pay assets creating a possibility for interest shortfalls for non-deferrable classes in periods with lowest interest collections.
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.
The complete report is available at 'fitchratings.com'.
More information:
fitchratings.com/creditdesk/reports/ report_frame.cfm?rpt_id=779088
fitchratings.com/creditdesk/reports/ report_frame.cfm?rpt_id=751136
fitchratings.com/creditdesk/reports/ report_frame.cfm?rpt_id=748781
fitchratings.com/creditdesk/reports/ report_frame.cfm?rpt_id=744158
fitchratings.com/creditdesk/reports/ report_frame.cfm?rpt_id=753057
fitchratings.com/creditdesk/reports/ report_frame.cfm?rpt_id=745339
fitchratings.com/gws/en/disclosure/solicitation?pr_id=875954
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