While the rating agencies have been actively downgrading bonds across almost all sectors, we thought it may be fun to compare the performance of regional US banks during COVID-19 against their performance during the 2007-2008 financial crisis.
Bank TruPS CDOs are deals supported by trust preferred securities issued by regional/community banks. Interestingly enough, since the onset of the coronavirus, the TruPS CDOs (if anything) have been going up from a ratings perspective.
Yesterday, Kroll Bond Rating Agency affirmed the ratings of a 2018 deal, without making any mention of the coronavirus. Meanwhile in a series of (we count four) ratings releases since March, Fitch has upgraded dozens of tranches, and affirmed many others too. No downgrades, and no mention of COVID-19.
So why the upgrades? The likely answer is that many of the upgrades have been lingering for a few years, and just had to happen at some stage, so why not now?
Here's one of the more interesting bonds, the $70mm top tranche (originally AAA) of a 2005 deal called Regional Diversified Funding 2005-1, which has seen both crises.
Read the chart from the bottom up. Pre-crisis, Fitch has it at AAA, until it was (rather dramatically) downgraded on a single day to CCC in 2009. That's incredible. Okay, fast forward and it's single C in 2010, Fitch's lowest rating: an expectation of full or almost full wipeout.
Since it had gone from AAA (sacrosanct) to C (a dead-beat) it's just as incredible that it has since marched back up to CC (in 2015, of all times) and then CCC, BB and now A (as of yesterday), which is a serious investment grade rating.
Nevermind the coronavirus!
