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EJF gains ratings boost in 7th post-crisis TruPS CDO

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EJF Capital has gained its highest senior-note rating among its seven post-crisis securitizations of bank trust-preferred securities (TruPS) and insurance surplus notes.

Kroll Bond Rating Agency has assigned an AA+ to the Class A-1 tranche of EJF’s $351 million TruPS Financials Note Securitization 2018-2. That compares to AA- on the prior EJF-sponsored transaction in April.

The ratings bump was accompanied by a higher overcollateralization level (166.8%) over previous deals, as well as a pool of higher-rated obligors.

The collateral pool consists of 73 well-aged securities from 62 obligors, split between 45 regional and community banks (with a $227.4 million combined balance on the long-term TruPS) and 17 small and medium-sized insurance companies with $73.6 million on highly subordinated surplus notes.

All of the securities are pre-crisis issues of long-term obligations with most set to mature over the next 12 to 19 years.

Assets in EJF securitizations are TrUPS that were formerly used as collateral for CDOs that have since been redeemed. According to Kroll, 40% of the securities in the new pool are being repackaged from EJF’s 2016 TruPS transaction, which was its first post-crisis deal of the TruPS bonds banks formerly used to boost Tier 1 capital.

TruPS fell out of favor in the post-crisis era, with community banks instead choosing to issue subordinated debt that are much shorter duration obligations (typically five years of average life within a 10-year maturity) and are only used in supplementing Tier 2 capital.

TruPS usually are non-amortizing securities with 30-year maturities that are non-callable for five-to-10-year non-call periods and can defer interest payments for up to five years.

The EJF transaction includes a $180 million Class A-1 tranche, $58 million in Class A-2 notes (rated A-), $29.8 million in Class B notes (rated BB) and $50.7 million in unrated subordinated notes.

The deal is static; no additional assets will be acquired after closing.

Most of the TruPS in the portfolio were issued by community banks and small regional institutions – only two obligors have assets over $15 billion (Umpqua Holdings and Pacwest Bancorp).

Of the insurance companies, five are life and health carriers and the remainder in property and casualty lines of business. The insurance debt is a combination of surplus notes (5.6% of the portfolio) and trust-preferreds (14.8%).

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