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Fitch Upgrades and Affirms Notes of Seven Taberna Preferred Funding U.S. REIT TruPS CDOs.

Chicago: Fitch Ratings has affirmed the ratings of 59 classes, upgraded 11 classes and assigned Rating Outlooks to three classes of notes from seven collateralized debt obligations (CDOs). The CDOs have exposure to trust preferred securities (TruPS), senior and subordinated debt issued by real estate investment trusts (REITs) and corporate issuers, tranches of structured finance (SF) CDOs, and commercial mortgage backed securities (CMBS).

The individual actions are detailed in the rating action report 'Fitch Upgrades and Affirms Notes of Seven Taberna Preferred Funding U.S. REIT TruPS CDOs'.


Fitch upgraded the class A-1LA and A-1LAD notes in Taberna Preferred Funding IX, Ltd./Inc. (Taberna IX) to 'BBsf'/Outlook Stable from 'CCCsf'. The pari passu first priority classes have delevered by 18% of their previous balances since Fitch's last review from principal proceeds and approximately $2 million of excess spread per quarter. Taberna IX has been in acceleration since November 2015 after interest due on timely classes was unpaid, which triggered an event of default. Similarly, the upgrades to the classes of notes across four other Taberna Preferred Funding CDOs are due to deleveraging of the most senior classes from excess spread and principal paydowns, which increased credit enhancement levels.

For potential upgrades, in addition to the base case, Fitch considered a sensitivity scenario in which the weighted average lives of the SF CDO and CMBS assets were extended to half of their term to their legal maturities. The results of the sensitivity analysis support the rating recommendations.

All seven CDOs are in acceleration which diverts excess spread to the most senior classes outstanding, while cutting off interest due on the remaining timely classes in each transaction. Overall, collateral quality of the underlying assets has remained stable since last review, with modest levels of collateral redemptions, supporting affirmations for the majority of the notes.

The earlier involuntary Chapter 11 petition in Taberna Preferred Funding IV, Ltd./Inc. (Taberna IV), filed by the holders of class A-1 and certain holders of class A-2 notes (Petitioning Creditors) in June 2017 has been denied. Certain noteholders junior to the class A-1 and A-2 notes, along with the collateral manager TP Management LLC, filed interpleader complaint objecting to the involuntary bankruptcy filing. The U.S. Bankruptcy Court for the Southern District of New York concluded that the Petitioning Creditors failed to demonstrate that they hold undersecured claims against Taberna IV and denied the involuntary petition. The outcome of the litigation did not have any impact on any Fitch-rated notes in Taberna IV as all proceeds were distributed according to the governing documents during the litigation and no funds were held in escrow at any time.


Significant paydowns combined with stable or improving credit migration or recoveries on distressed assets meaningfully exceeding current assumptions could lead to upgrades. Conversely, negative migration and defaults beyond those projected would lead to downgrades.

This review was conducted under the framework described in the reports 'Structured Finance CDOs Surveillance Rating Criteria' and 'CLOs and Corporate CDOs Rating Criteria'.


Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action.
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Publication:Daily the Pak Banker (Lahore, Pakistan)
Date:Dec 19, 2018
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