collateralized debt obligations backed by trust preferred securities
(TruPS CDOs). The updates, if adopted, will have a generally positive
impact of up to four notches on the ratings of senior tranches and up to
three notches on those of mezzanine and junior tranches.
"Request for Comment: Moody's Approach to Rating TruPS CDOs" describes
the proposed changes.
The proposed changes include (1) removing the current 25% macro default
probability stress for bank and insurance TruPS; (2) expanding the
default timing profiles to six probability-weighted scenarios; (3)
incorporating a redemption profile for bank and insurance TruPS; (4)
using a loss distribution generated by Moody's CDOROMÂ„¢ for deals that do
not permit reinvestment; (5) giving full par credit to deferring bank
TruPS that meet certain criteria; and (6) raising the assumed recovery
rate for insurance TruPS.
The proposed changes primarily reflect the improvement in the economic
and credit environment for banks since the 2008-09 financial crisis.
They also reflect the recent performance data Moody's has collected on
interest deferrals, defaults and recoveries for TruPS, as well as the
significant number of TruPS redemptions over the last four years.
Moody's invites market participants to provide feedback on the request for comment by
for Comment Page on www.moodys.com
Moody's will finalize the changes to its rating approach for TruPS CDOs
after taking responses to this request for comment into account,
following which it will publish its revised methodology and place on
review the ratings on the affected TruPS CDOs.
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