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Moody's requests comments on proposed updates to its approach to rating TruPS CDOs

May 4, 2014



Moody's Investors Service is seeking comments from market participants on proposed updates to its rating approach for

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 2 June 2014, by submitting their comments on the Request

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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Source: EMBIN (Emerging Markets Business Information News)