TEXT-Fitch says APAC CDOs lead structured finance Q209 dwngrades

(The following statement was released by the rating agency)

July 20 - Fitch Ratings has today commented that a total of 101 tranches (including public, private, international and national ratings) were downgraded during the second quarter of 2009 (Q209), while seven were upgraded. Additionally, 139 tranches were affirmed, accounting for nearly 11% of all outstanding tranches rated by Fitch in the region.

"CDOs accounted for the majority of downgrades this quarter as the first Asia-Pacific tranches defaulted, as tranche credit enhancements were permanently eroded following final settlements on several high profile investment grade corporate credit events triggered in previous quarters. Tranche defaults, as a result of the final settlements, led to the downgrades of 8 corporate CDO tranches to 'D' during the quarter," notes Alison Ho, Director and Head of Performance Analytics in the agency's Asia Pacific Structured Finance team. "Three tranches from the troubled Mobius ELR-01 transaction were also downgraded to 'D' during the quarter, although this was due to circumstances specific to this transaction, and is not indicative of wider credit issues in Australian ABS," adds Ms. Ho.

There were a total of 58 CDO downgrades, 12 of which were simultaneously withdrawn, following tranche defaults and subsequent note cancellations by issuers. Two Indian corporate entities were also downgraded in Q209, resulting in the downgrades of 24 series from 20 single loan sell down transactions. In Japan, seven ABS tranches were downgraded as a result of similar rating actions on life insurers, to which the ratings are linked.

All of the tranches whose ratings were placed on Rating Watch Negative (RWN) in the second quarter are from Japanese CMBS transactions, predominantly as a result of Fitch's review of transactions exposed to liquidation type loans. The performance of these transactions depends on the ability of the borrowers to dispose of properties, which in the current market has proved challenging.

In July 2009, a further 130 tranches from 31 large loan Japanese CMBS transactions were placed on RWN, as defaults on maturing loans and loans becoming due in Fitch-rated CMBS reached 53% in H109, reflecting the limited availability of finance for real estate, given current market conditions; compounded by the uncertainty on commercial property values and the gloomy economic outlook for Japan.

At the end of June 2009, 157 tranches in Asia-Pacific had Negative Outlooks, an increase from 107 at the end of Q109. Australian RMBS accounted for the majority of these - mainly as a result of outlooks on the lenders mortgage insurers - with Japanese CMBS and Indian single loan sell down transactions also having a sizeable number of Negative Outlooks.

Seven tranches from two well-seasoned Australian small balance CMBS transactions were upgraded, as asset performance has been good and credit enhancement built up, following the redemption of senior notes.

Individual releases relating to specific rating actions can be found on Fitch's website, www.fitchratings.com.