DBRS Confirms Superior Trust Series D, E, F and G Floating-Rate Medium Term Notes

DBRS has today confirmed the ratings of various series of notes issued by Superior Trust (the Trust). The Series D Floating-Rate Medium Term Notes (the Series D Notes) have been confirmed at BBB (sf), the Series E Floating-Rate Medium Term Notes (the Series E Notes) at BBB (low) (sf), and the Series F Floating-Rate Medium Term Notes (the Series F Notes) and Series G Floating-Rate Medium Term Notes (the Series G Notes) at A (low) (sf).

The Series D and E Notes were issued by the Trust in exchange for Series B Floating-Rate Notes (the Series B Notes) in connection with the restructuring of the Series B Notes that were previously outstanding.

The Series F Notes are exposed to an amended version of the Series D Notes credit default swap (CDS) portfolio, with 20% of the reference entities being replaced. All other terms of the Series F Notes are the same as the terms of the Series D Notes. The Series G Notes are exposed to an amended version of the Series E CDS portfolio, with 24% of the reference entities being replaced. All other terms of the Series G Notes are the same as the terms of the Series E Notes.

On November 13, 2009, DBRS downgraded the Series D and E Notes from A (low) (sf) to BBB (sf) and BBB (low) (sf), respectively, due to the severe credit deterioration of two underlying entities (Aiful Corporation and Takefuji Corporation). On the same day, DBRS assigned a new rating of A (low) (sf) to both the Series F and G Notes.

Since the aforementioned rating actions were taken, credit events were triggered for Aiful Corporation and Takefuji Corporation. DBRS had used conservative probability of default assumptions for these two entities in the months leading up to the credit events. As a result, the credit events did not have an impact on the ratings of the Series D, E, F and G Notes (collectively, the Notes).

The ratings were confirmed on November 23, 2010, and no additional credit events have occurred since then.

Among the corporate entities referenced by the Series D, E, F and G Notes portfolios, the number of upgrades has roughly equalled the number of downgrades over the past year, and very few underlying entities have been downgraded by more than one rating notch. Although the average credit quality of the portfolios has not materially changed, the Notes benefit from an additional year of time decay, a concept whereby a structured credit transaction grows less risky as its maturity date draws nearer. As a result, the stability of the Notes at their confirmed rating levels has strengthened over the past year.

The current ratings of the Notes are sufficient, based on the current levels of subordination relative to the required levels of subordination, which are mainly based on the ratings distributions, industry diversification and regional diversification of obligors included in the Series D, E, F and G reference portfolios, as well as on the remaining term of the Notes.

The scheduled termination of the Notes is September 28, 2016. DBRS continues to actively monitor the credit quality of the Notes and will provide further updates as necessary.

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