Fitch Ratings has downgraded four classes of notes from U.S. Capital Funding IV, Ltd./Corp. (U.S. Capital IV) following a payment default on scheduled interest due, as well as additional portfolio credit deterioration. A full list of rating actions follows at the end of this press release.
The downgrades to the class B-1 and B-2 (class B) notes incorporate the transaction's non-payment of its periodic interest due. On the Sept. 1, 2009 payment date, the senior overcollateralization test failed at 119.3% relative to its respective trigger of 125%. Available proceeds of $1.9 million were used to cure the failing senior coverage test, resulting in a payment shortfall to the class B notes. The class B notes received none of their interest due. This non-payment to the notes is considered a payment default.
An additional driver to the downgrades on the class A-1 and A-2 notes is continued underperformance of collateral due to negative portfolio credit migration, and additional defaults and deferrals. Since April 2009, the portfolio experienced $45.5 million (13.5%) of new defaults and $20.2 million (6%) of new deferrals. Currently defaulted securities represent $74 million (22%) and deferring securities $43.9 million (13.1%) of the portfolio. Fitch considered $117.9 million (35.1%) of default and deferrals in its analysis up from $77.2 million in April 2009. This additional deterioration makes default a real possibility for the class A-1 notes while a default on the class A-2 notes appears probable.
Due to the recent event of default, as well as the current condition of the portfolio from continued deterioration, Fitch did not perform cash flow modeling as part of this analysis. This review was conducted under the framework described in the report 'Fitch Revises Criteria for Reviewing U.S. CDOs Backed by Bank & Insurance TruPS' dated March 25, 2009 using updated bank scores for projecting expected losses for the underlying portfolio. This framework assumes 100% loss for defaulted securities, a default rate of 50% for all deferring securities, and a 25% default rate for banks with a Fitch bank score of 4.5 or 5.0.
Fitch has taken the following actions:
--$192,905,774 class A-1 notes downgraded to 'CCC' from 'BBB';
--$14,000,000 class A-2 notes downgraded to 'CC' from 'BB';
--$92,250,000 class B-1 notes downgraded to 'D' from 'CC';
--$12,500,000 class B-2 notes downgraded to 'D' from 'CC'.
Fitch does not assign Rating Outlooks to classes rated 'CCC' or lower. The Rating Outlook for classes A-1 and A-2 was Negative prior to today's downgrades.
These rating actions reflect the application of Fitch's current criteria which are available at www.fitchratings.com and specifically include the following reports:
--'Global Structured Finance Rating Criteria' (Sept. 30, 2009);
--'Global Rating Criteria for Structured Finance CDOs' (Dec. 16, 2008);
--'Fitch Revises Criteria for Reviewing U.S. CDOs Backed by Bank & Insurance TruPS' (March 25, 2009);
--'Rating Criteria for U.S. Bank and Insurance Trust Preferred CDOs' (Feb. 2, 2005).
Additional information is available at www.fitchratings.com.
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Contacts:
Fitch Ratings
Johann Juan, +1-312-368-3339 (Chicago)
Derek
Miller, +1-312-368-2076 (Chicago)
Kevin Kendra, +1-212-908-0670
(New York)
or
Brian Bertsch, +1-212-908-0549
(Media
Relations, New York)
brian.bertsch@fitchratings.com