MPC provides multiple levels of analysis on corporate securities. Our deepest look into corporate bonds begins with a thorough examination of the issuer’s fundamentals with the purpose of evaluating the probability of default and projected loss given default. All levels of our corporate bond analyses incorporate the consideration of credit indicators including NRSRO credit ratings, CDS implied default rates, and observable credit spreads from recent trades.
Trust Preferred Securities & TruPS CDOs
Much like for corporate bonds, MPC analyzes trust preferred securities (TruPS) by focusing on the issuer’s fundamentals. Specifically for TruPS, MPC evaluates the issuer in part by considering key financial ratios including the issuer’s return on average assets (ROAA), return on average equity (ROAE), non-performing loans to total loans (“NPL/TL”), and Texas Ratio. These objective metrics, along with the consideration of more subjective issuer characteristics, result in an MPC probability of default and loss given default conclusion.
Our TruPS CDO analysis requires the combination of a credit evaluation of the individual TruPS backing the CDO and a consideration of the transaction’s capital structure and tranche specific features.
Our TruPS CDO report clearly shows:
- An examination of issuer level statistics that allows us to discern the strength of the issuer's credit profile
- Timing of expected cash flows, if a tranche is "picking" and the performance of triggers that dictate when and how much a tranche is owed
- Transparent issuer level default and recovery assumptions that can be modified at client request
- Analysis of performing and non-performing issuer collateral compared to what is needed to pay bondholders
- Performance of interest rate SWAP contracts.
- Timing of and exposure to issuers that start deferring and how it impacts your ownership