Fitch Ratings has placed 179 notes from 72 bank trust preferred (TruPS) collateralized debt obligations (CDOs) on Rating Watch Negative to reflect the increased default and deferral activity in bank TruPS assets. In many portfolios the recent default and deferral activity has now exceeded Fitch's expectations from the portfolio review in April 2009. Consequently, 295 notes from 76 TruPS CDOs have been downgraded reflecting realized losses from defaulted assets and anticipated losses from deferring assets in the respective portfolios.
Today's downgrades primarily impacted notes rated below investment grade with 159 of the notes downgraded previously rated 'CCC' or 'CC' and 40 notes carrying other below investment grade ratings prior to downgrade. Additionally, a majority of the notes downgraded were downgraded by one rating category or less.
The level of distress for local and regional banks that financed through TruPS CDOs has resulted in $2.7 billion of new bank TruPS defaults and $2.4 billion of new deferral activity since the March 31, 2009. Further default and deferral performance information for bank collateral in TruPS CDOs is available in the report 'Fitch Bank TruPS CDO Default and Deferral Index', dated Feb. 10, 2010.
Fitch loss projections in April 2009 averaged 11.6% of a transaction's portfolio. Meanwhile, realized and imminent losses from new defaults and deferrals now average approximately 20.6% of the portfolio. The Rating Watch Negative reflects Fitch's view that the loss expectations for these portfolios have exceeded expectations. Where loss expectations significantly exceeded previous assumptions, Fitch downgraded notes to reflect its current credit opinion of the quality of the notes.
Fitch is currently reviewing its analytical assumptions for defaults and deferrals in Bank TruPS CDOs. Resolution of the Rating Watch Negative status will occur following a review of Fitch's currently published analytical assumptions in the following reports:
--'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).
A spreadsheet detailing Fitch's rating actions is available on the agency's public web site, 'www.fitchratings.com', under the following headers:
Structured Finance then Structured Credit then Special Reports
Additional information is available at 'www.fitchratings.com'.
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