TEXT-Fitch says APAC CDOs lead structured finance Q209 dwngrades

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There were a total of 58 CDO downgrades, 12 of which were simultaneously withdrawn, following tranche defaults and subsequent note cancellations by issuers.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.

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