Research: Rating Action: Moody’s assigns provisional ratings to five classes of notes to be issued by TruPS Financials Note Securitization 2022-1

New York, August 10, 2022 — Moody’s Investors Service (“Moody’s”) has assigned provisional ratings to five classes of bonds to be issued by TruPS Financials Note Securitization 2022-1 (the “Issuer” or “TFNS 2022-1 ”).

Moody’s rating action is as follows:

$134,000,000 Class A-1 Floating Rate Senior Secured Notes Due 2042 (the “Class A-1 Notes”), allotted (P)Aa2 (sf)

$101,000,000 Class A-2 Fixed/Floating Rate Senior Secured Notes Due 2042 (the “Class A-2 Notes”), allotted (P)Aa2 (sf)

$17,000,000 Class B Mezzanine Deferred Floating Rate Notes due 2042 (the “Class B Notes”), awarded (P)A3 (sf)

$21,500,000 Mezzanine Class C Deferred Floating Rate Notes Due 2042 (the “Class C Notes”), Sold (P)Baa3 (sf)

$10,500,000 Class D Deferred Floating Rate Mezzanine Notes due 2042 (the “Class D Notes”), Allotted (P)Ba3 (sf)

RATINGS RATIONALE

The justification of the ratings is based on our methodology and takes into account all the relevant risks, in particular those associated with the portfolio and the structure of the CDO.

TFNS 2022-1 is a static cash flow CDO. The Notes issued will be secured primarily by a portfolio of Trust Preferred Securities (“TruPS”) and subordinated notes issued by US community banks and their holding companies. We expect the portfolio to be 100% strengthened by the closing date.

EJF CDO Manager LLC (the “Manager”), a subsidiary of EJF Capital LLC, will direct the selection, acquisition and disposal of assets on behalf of the Issuer. The Manager will direct the disposition of any defaulted securities, credit risk securities or certain securities whose issuer has been acquired or merged with another institution (“APAI Securities”). Subject to certain reinvestment criteria, the Manager may reinvest the proceeds from the sale of APAI securities.

In addition to the Rated Notes, the Issuer will issue preferred shares.

The transaction incorporates interest and face value coverage tests which, if triggered, divert interest and principal proceeds to repay the notes in order of seniority.

The portfolio of this CDO is made up of TruPS, subordinated debt issued by 64 American community banks, the majority of which are not rated by Moody’s. Moody’s assesses the probability of default of bank debtors that do not have a public rating using credit scores calculated using RiskCalc™, an econometric model developed by Moody’s Analytics. Moody’s assessment of the pool’s bank obligor credit risk is based on FDIC Q1-2022 financial data. Moody’s assumes a fixed recovery rate of 10% for bank and insurance bonds.

For modeling purposes, Moody’s used the following basic assumptions:

Nominal amount: $324,540,000

Weighted Average Rating Factor (WARF): 709

Weighted Average Spread (WAS) Float only: 2.92%

Weighted Average Coupon (WAC) Fixed only: 6.50%

Weighted average coupon (WAC) fixed at the float: 6.23%

Fixed-to-float weighted average spread (WAS): 3.93%

Weighted Average Life (WAL): 9.11

In addition to the quantitative factors explicitly modeled by Moody’s, qualitative factors were taken into account by the rating committee. Moody’s takes into account the structural protections of the transaction, the risk of an event of default, the legal environment and the specific characteristics of the documentation. All information available to the rating committees, including macroeconomic forecasts, input from other Moody’s analytical groups, market factors and judgments regarding the nature and severity of credit stress on the transaction, influenced the final grading decision.

Methodology behind the rating action:

The main methodology used in these ratings was “Moody’s Approach to Rating TruPS CDOs” published in July 2021 and available at https://ratings.moodys.com/api/rmc-documents/74076. Otherwise, please see the Scoring Methodologies page on https://ratings.moodys.com for a copy of this methodology.

Factors that would cause ratings to be upgraded or downgraded:

The performance of the Rated Securities is subject to uncertainty. The performance of Rated Notes is sensitive to the performance of the underlying portfolio, which in turn depends on changing economic and credit conditions. The portfolio consists primarily of unrated assets whose probability of default is assessed by Moody’s using credit ratings calculated using RiskCalc™ or credit assessments. Since these are not public ratings, they are subject to additional estimation uncertainty.

Moody’s obtained a loss distribution for this CDO portfolio by simulating defaults using Moody’s CDOROM™, which used Moody’s assumptions for asset correlations and fixed recoveries in a Monte Carlo simulation framework. Moody’s then used the resulting loss distribution, along with the structural characteristics of the CDO, as input to its CDOEdge™ cash flow model.

Further details regarding Moody’s analysis of this transaction can be found in the related pre-sale report, soon to be available on Moodys.com.

REGULATORY INFORMATION

For details on key rating assumptions and Moody’s sensitivity analysis, see the Methodological Assumptions and Sensitivity to Assumptions sections in the Disclosure Form. Moody’s rating symbols and definitions can be found at https://ratings.moodys.com/rating-definitions.

Further information on representations, warranties and enforcement mechanisms available to investors can be found at https://ratings.moodys.com/documents/PBS_1338584.

The analysis relies on an assessment of the characteristics of the collateral to determine the distribution of collateral losses, ie the function correlated to an assumption about the probability of occurrence of each level of possible collateral losses. Secondly, Moody’s assesses each possible collateral loss scenario using a model that reproduces the relevant structural characteristics to derive the payouts and therefore the ultimate potential losses for each rated instrument. The loss incurred by a rated instrument in each collateral loss scenario, weighted by assumptions about the likelihood of events in that scenario occurring, results in the expected loss of the rated instrument.

Moody’s quantitative analysis involves an evaluation of scenarios that focus on factors contributing to rating sensitivity and consider the likelihood of material collateral losses or impaired cash flows. Moody’s weights the impact on rated instruments based on its assumptions of the likelihood of events in such scenarios occurring.

For ratings issued on a program, series, category/class of debt or security, this announcement provides certain regulatory information regarding each rating of a subsequently issued bond or note of the same series, category/class of debt, security or under a program for which ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a media provider, this announcement provides certain regulatory information relating to the credit rating action on the media provider and each particular credit rating action for securities whose credit ratings are derived from the support provider’s credit rating. For the provisional ratings, this press release provides certain regulatory information relating to the provisional rating assigned, and to a final rating that may be assigned after the final issuance of the debt, in each case where the structure and conditions of the transaction n have not changed prior to the final rating being assigned in a way that would have affected the rating. For more information, please see the issuer/transaction page of the respective issuer at https://ratings.moodys.com.

For all relevant securities or rated entities receiving direct credit support from the lead entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action , the associated regulatory information will be that of the guarantor entity. Exceptions to this approach exist for the following information, if applicable to the jurisdiction: Ancillary services, Information to be provided to the rated entity, Information to be provided by the rated entity.

The ratings have been communicated to the rated entity or its designated agent(s) and issued without modification resulting from such communication.

These notes are solicited. Please refer to Moody’s Policy for the Designation and Assignment of Unsolicited Credit Ratings available on its website. https://ratings.moodys.com.

The regulatory information contained in this press release applies to the credit rating and, if applicable, the outlook or rating revision relating thereto.

Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis are available at https://ratings.moodys.com/documents/PBC_1288235.

The worldwide credit rating on this credit rating announcement was issued by one of Moody’s affiliates outside the EU and is approved by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main. -le-Main 60322, Germany, in accordance with Article 4(3) of Regulation (EC) No 1060/2009 on credit rating agencies. Further information on the EU approval status and the Moody’s office that issued the credit rating can be found at https://ratings.moodys.com.

The worldwide credit rating on this credit rating announcement has been issued by one of Moody’s affiliates outside the UK and is approved by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the United Kingdom. . Further information on the UK endorsement status and the Moody’s office that issued the credit rating can be found at https://ratings.moodys.com.

Please see https://ratings.moodys.com for any updates on changes to the lead rating analyst and Moody’s legal entity that issued the rating.

Please see the issuer/transaction page at https://ratings.moodys.com for additional regulatory information for each credit rating.

Yinni Li
Vice President – Senior Analyst
Structured Finance Group
Moody’s Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
UNITED STATES
JOURNALISTS: 1 212 553 0376
Customer service: 1 212 553 1653

Algis Remeza
Associate General Manager
Structured Finance Group
JOURNALISTS: 1 212 553 0376
Customer service: 1 212 553 1653

Release Office:
Moody’s Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
UNITED STATES
JOURNALISTS: 1 212 553 0376
Customer service: 1 212 553 1653

About Ian Crawford

Check Also

Indus Insights, a leading data science and analytics consultancy, raises growth capital funding

Indus Insights raises growth capital Organizations can unlock tremendous value using data science and analytics, …