News Column

Fitch Affirms All Tranches in Nine Trust Preferred CDOs

May 29, 2014

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has affirmed 44 tranches from nine Collateralized Debt Obligations (CDOs) backed primarily by Trust Preferred (TruPS) securities issued by banks and revised the Outlook to Stable in one tranche:

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 eight CDOs average credit quality has improved since last review. Four transactions experienced new defaults, with all of them deferring at last review.

Collateral Redemptions: Six CDOs received moderate level of redemptions that paid down the senior-most notes and increased credit enhancement (CE) levels for all rated notes. The magnitude of redemptions for each CDO is reported in the rating action report. Potential upgrades were weighed against the risk of adverse selection in the remaining portfolios and the likelihood of the remaining note balance to be outstanding for an extended period of time.

Excess Spread and CDO Structure: Excess spread continued to contribute to deleveraging of all but one CDO. Improving portfolio performance and deleveraging can lead to some coverage tests becoming compliant that, in turn, will cause redirection of excess spread to pay down cumulative deferred interest on mezzanine classes and diminished excess spread available to pay down senior classes in the future. Fitch estimates future levels of excess spread as described in the criteria 'Surveillance Criteria for TruPS CDOs,' dated April 21, 2014.

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 the criteria. Currently deferring issuers defined as 'strong' are assigned a higher likelihood of curing than 'weak' deferrals.

RATING SENSITIVITIES

Changes in the rating drivers described above could lead to rating changes in the TruPS CDO notes.

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 future.

In addition, to address potential risks of adverse selection and increased portfolio concentration after likely redemptions by the issuers with asset size of $15 billion or more, Fitch applied a sensitivity scenario, as described in the criteria.

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:

--'Surveillance Criteria for Trust Preferred CDOs' (April 21, 2014);

--'Global Rating Criteria for Corporate CDOs' (Aug. 8, 2013);

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

--'Criteria for Rating Caps and Limitations in Global Structured Finance Transactions (May 28, 2014).

Applicable Criteria and Related Research: Fitch Affirms All Tranches in Nine Trust Preferred CDOs

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=749560

Surveillance Criteria for Trust Preferred CDOs

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=745339

Global Rating Criteria for Corporate CDOs

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=715492

Counterparty Criteria for Structured Finance and Covered Bonds

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

Criteria for Rating Caps and Limitations in Global Structured Finance Transactions

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

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=832178

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, Inc.

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

sandro.scenga@fitchratings.com

Source: Fitch Ratings


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