This document provides an overview of FIG Partners' methodology for analyzing trust preferred CDOs (TRUPS CDOs). It utilizes a proprietary model that takes both a top-down and bottom-up approach, estimating default vectors at the system level and for individual issuers. Issuer risk is assessed using financial metrics to assign a rating of 1 to 3. Cash flows are modeled using loss, prepayment, and default rate assumptions. Securities are then priced to determine fair value and assess potential other-than-temporary impairment. Contact information is provided for FIG Partners teams in Atlanta and Los Angeles.
1. September 2013
Ricardo Diaz – Head of Fixed Income Pete Vaky
rdiaz@figpartners.com pvaky@figpartners.com
Brian Zwerner Sean McGlynn
bzwerner@figpartners.com smcglynn@figpartners.com
Tim Horton Chris Wood
thorton@figpartners.com cwood@figpartners.com
Megan Levine Amanda Havriluk
mlevine@figpartners.com ahavriluk@figpartners.com
(404) 601 7248
Sample Trust-Preferred
(TRUPS) CDO Analysis
2. 2
Methodology for TRUPS CDO Analysis
FIG Partners, LLC utilizes a proprietary model to price and create cash flows for Trust
Preferred CDOs (TRUPS CDO). The model incorporates both a top-down and a bottom-up
approach to estimate default vectors for the underlying issuers within each TRUPS CDO.
The top-down aspect of the model is an estimate of expected bank failures across the entire
banking system and their impact on TRUPS CDO securities. The bottom-up aspect of the
model assigns a risk rating to each individual issuer in the collateral pool. This allows for a
comparison of the relative risk of the TRUPS portfolio versus the banking universe.
The individual risk rating process uses company specific data to assign a risk ranking for
each issuer within a TRUPS portfolio. Below are a number of the issuer specific data that
may be used to assign a ranking:
Tier 1 capital ratio
Return on average assets
Percent of non-performing loans
Percent of commercial/construction loans
Brokered deposits
3. 3
Methodology for TRUPS CDO Analysis
Company specific data are utilized to assign a risk ranking for each issuer within a TRUPS portfolio
with issuers scored on a three-point rating system. The following is a description of the characteristics
for the issuers within each rating grade:
Risk Rating 1: an institution that has an exceptional or strong financial condition, with
limited nonperforming assets, and sufficient capitalization for its balance sheet with solid
earnings.
Risk Rating 2: an institution with an adequate financial condition that is likely to meet its
credit obligations. The issuer may have an elevated level of nonperforming assets or may
have recently experienced earnings shortfalls or losses.
Risk Rating 3: an institution whose financial condition is judged to be relatively weak or
even poor, which may have challenges meeting financial obligations. The issuer likely has
elevated problem assets, and typically has experienced losses or significant write-downs in
the recent past.
The risk ranking of each issuer is then used to assign an expected default vector to each TRUPS CDO.
For non-bank issuers, default vectors are assigned based on an individual evaluation of the issuer. For
each deal, an expected prepayment rate and loss severity/timing are also estimated based upon industry
wide and deal specific factors.
4. 4
Methodology for TRUPS CDO Analysis
Once cash flows are created using the pricing parameters for each security, a Market Yield level is
then calculated for each bond as defined below.
Market Discount Margin: the spread over the floating rate (LIBOR) for a security
corresponding to the price expected in the current market environment reflecting the lack of
liquidity and distressed nature of securities sales today. This is calculated by identifying
similar securities based on a number of attributes from a database of securities offerings and
trading levels maintained by FIG Partners.
Each security is then priced in a cash flow model to determine the Market Price. For each security we
next calculate the Other Than Temporary Impairment (OTTI) if any through a discounted cash flow
model.
5. 5
Base Case Assumptions – PRETSL13 B1 Tranche
Base Case Assumptions:
•Default immediately any securities that are currently defaulted or have deferred interest (assuming 90%
Loss Severity and 12 month Recovery Lag).
•For the rest of the portfolio apply the following assumptions based upon risk ranking of issuers
Loss and Recovery Assumptions
90% Loss Severity (adjusted for BTFG merger); and
18 month recovery lag
Prepayment Assumptions
1% CPR for the life of the transaction
Call Option/Clean-up Call
None - run the deal to maturity (securities will extend unless they are sold for par or can cover
the liabilities at the auction date).
16%/70%/14% Risk Rank 1/2/3
CDR Assumptions
2012 0.83%
2013 0.79%
2014 0.52%
2015 0.32%
2016 0.27%
2017 and after 0.25%
6. 6
Projected Cash Flows, FMV and OTTI– PRETSL13 B1
Summary
B1 Class is expected to have a writedown under our base case scenario.
The DCF Price is below the Book Price, so OTTI is required at this time.
We believe the discount margin to LIBOR where a willing seller/buyer would likely
sell/buy in the current market is 11.57% which equates to a 26.78 dollar price.
PRETSL XIII B-1
Annual Interest Principal Cashflow Losses Balance
6/24/13 0 0 0 0 530,495
6/24/14 0 0 0 0 541,126
6/24/15 10,899 6,904 17,803 0 534,926
6/24/16 13,117 8,517 21,634 0 526,409
6/24/17 15,600 6,774 22,374 0 519,635
6/24/18 18,277 4,830 23,106 0 514,806
6/24/19 20,449 3,055 23,504 0 511,751
6/24/20 22,106 1,576 23,681 0 510,175
6/24/21 23,333 623 23,956 0 509,634
6/24/22 24,034 0 24,034 0 510,042
6/24/23 23,864 414 24,277 0 511,516
6/24/24 24,194 0 24,194 0 513,747
6/24/25 23,848 0 23,848 0 516,952
6/24/26 23,744 0 23,744 0 520,567
6/24/27 23,437 0 23,437 0 524,606
6/24/28 23,301 0 23,301 0 529,059
6/24/29 22,761 0 22,761 0 533,570
6/24/30 22,221 0 22,221 0 538,381
6/24/31 21,770 0 21,770 0 543,535
6/24/32 21,599 0 21,599 0 548,875
6/24/33 21,295 0 21,295 0 554,615
6/24/34 16,559 160,172 176,731 398,300 0
Totals 416,407 192,864 609,271 398,300
DCFValue FairMarket Value OTTI
Discount Margin 1.57% 11.57%
Price 73.10 26.78
Amount $ 365,476 $ 133,895 $159,994
7. 7
Disclaimer
Confidentiality Agreement / Legal Disclaimer
This presentation (the “Presentation”) is being furnished on a confidential basis to a limited number of sophisticated investors on a “one-on-
one” basis for informational and discussion purposes only and does not constitute an offer to sell or a solicitation of an offer to purchase any
security. The information set forth herein does not purport to be complete and is subject to change.
The information contained herein does not purport to contain all of the information that may be required to evaluate any securities or other
opportunities and any recipient hereof is encouraged and should conduct its own independent analysis of the data referred to herein. FIG
Partners, LLC (“FIG”) and its affiliates disclaim any and all liability as to the information set forth herein or omissions here from, including,
without limitation any express or implied representation or warranty with respect to such information.
Certain information contained herein (including targets, forward-looking statements, economic and market information) has been obtained
from published sources and/or prepared by third parties and in certain cases has not been updated through the date hereof. While such
sources are believed to be reliable, none of FIG or any of their respective affiliates or employees assume any responsibility for the accuracy or
completeness of such information.
Each party should seek advice based on its particular circumstances from an independent tax advisor. The use of this Presentation in certain
jurisdictions may be restricted by law. The products mentioned in this document may not be eligible for sale in some states or countries, nor
suitable for all types of investors; their value and the income they produce may fluctuate and/or be adversely affected by exchange rates,
interest rates, or other factors. All parties should inform themselves as to the legal requirements and tax consequences of an investment in the
products mentioned herein within the countries of their citizenship, residence, domicile and place of business.
No part of this document may be reproduced in any manner without the written permission of FIG. Information in this document has been
obtained from various sources; we do not represent that this information is accurate or complete and it should not be relied upon as such.
Opinions expressed herein are subject to change without notice.
Certain information contained in this report constitutes “forward-looking statements,” which can be identified by the use of forward-looking
terminology such as “may,” “will,” “seek,” “should,” “expect,” “anticipate,” “project,” “estimate,” “intend,” “continue” or “believe” or the
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actual performance may differ materially from those reflected or contemplated in such forward-looking statements.
To ensure compliance with Internal Revenue Service Circular 230, you are hereby notified that any discussion of tax matters set forth herein
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8. 8
For More Information – Contact FIG Partners
1175 Peachtree Street 350 S. Figueroa Street
100 Colony Square, Suite 2250 Suite 550
Atlanta, GA 30361 Los Angeles, CA 90071
(404) 601-7200 866-FIG-BNKS