DBRS Downgrades Superior Trust Series E Floating-Rate Medium Term Notes

DBRS has today downgraded the Superior Trust Series E Floating-Rate Medium Term Notes (the Series E Notes) to A (low) from AA.

The Series E Notes were issued by Superior Trust (the Trust) in connection with a restructuring of the Series B Floating-Rate Notes of the Trust that were previously outstanding. DBRS assigned a final rating of AA to the Series E Notes on December 19, 2008. The Series E Notes have a maturity date of September 28, 2016.

The Series E Notes are exposed to a collateralized debt obligation (CDO) transaction (the Transaction) that references a portfolio (the Portfolio) of 99 corporate obligors. The Transaction has an attachment point of 10.50% and a detachment point of 14.50%. No credit events have affected the Portfolio to date.

The stability cushion available to the Transaction was 227 basis points (bps) when it was initially rated in December 2008. By the end of May 2009, the stability cushion available to the Transaction had decreased to 27 bps due to 44 of the 99 underlying obligors experiencing credit deterioration.

A number of the Portfolio’s underlying obligors have experienced further downgrades over the last few months. CIT Group Inc. (CIT) was downgraded from BBB (high) to CC over multiple rating actions by DBRS; this rapid credit deterioration has negatively impacted the Transaction. The Portfolio has 1.01% exposure to CIT, which is now assigned a very high probability of default.

As a result of the downgrades to CIT and other corporate obligors, the required subordination levels from the DBRS CDO Toolbox have increased due to certain reference entities being assigned a greater probability of default, and the previous rating assigned is no longer appropriate.

The revised rating of A (low) assigned to the Series E Notes is sufficient based on the current level of subordination relative to the required level of subordination, which is mainly based on the ratings distribution, industry diversification and regional diversification of obligors included in the Portfolio, as well as the remaining term of the Series E Notes.

The Series E Notes have the following challenges:
(1) 62% of the Portfolio’s underlying ratings (notional-weighted) are currently under negative review or negative trend by at least one rating agency.

(2) The Portfolio has 16% exposure to non-investment grade obligors. Further ratings migration or defaults could negatively impact the rating of the Series E Notes.

The scheduled termination of the Transaction is September 28, 2016. DBRS is actively monitoring the credit quality of the Transaction and will provide further updates as necessary.

Notes:
The applicable methodologies are Rating Canadian Structured Credit Transactions and Canadian Structured Credit Surveillance, which can be found on our website under Methodologies.

This is a Structured Finance rating.