2008-06-27 23:45:14 -
- Fitch Ratings has placed the following notes on Rating Watch Negative:
North Street Referenced Linked Notes 2000-1, Ltd. (North Street 2000-1)
--USD36,000,000 class A notes rated 'AA-';
--USD40,000,000 class B notes rated 'BBB-';
--USD31,000,000 class C notes rated 'B'/'DR1';
North Street Referenced Linked Notes 2002-1A, Ltd. (North Street 2002-1A)
--USD100,000,000 class B notes
rated 'AAA'.
For purposes of this review, Fitch analyzed the asset-backed securities (ABS) portion of the portfolio using criteria outlined in 'Global Criteria for the Review of Structured Finance CDOs with Exposure to US Subprime RMBS' dated Nov. 15, 2007, while analyzing the corporate portion of the portfolio using the criteria outlined in 'Global Criteria for Corporate CDOs' dated April 30, 2008. Fitch combined Rating Loss Rates (required credit enhancement levels) from Vector 3.2 for the ABS portion of the portfolio with Rating Loss Rates from Fitch's Portfolio Credit Model for the corporate portion of the portfolio. Each model's results were weighted and combined based upon the percent of the portfolio that each asset type represented.
Key driver of this transaction's credit risk is credit deterioration in the portfolio and higher loss expectations in corporate CDOs as outlined in 'Global Criteria for Corporate CDOs' dated April 30, 2008. The weighted average rating of the corporate portion of the portfolio is 'BB+/BB'. Additionally, 12.7% of the portfolio is on Rating Watch Negative and 18.4% of the portfolio is on Outlook Negative by Fitch.
North Street 2000-1 and North Street 2002-1A are partially funded synthetic collateralized debt obligations (CDO) created to enter into credit default swaps with UBS Investment Bank referencing the same portfolio. The corporate portion of the portfolio comprises 87.5%. The three largest corporate industries make up 37.4% of the portfolio. They are banking and finance (16.5%), telecommunications (11.5%), and building and materials (9.4%). The remaining portion of the portfolio is composed of 11.3% commercial Asset Backed Securities (ABS) (Aircraft Leases), 1.2% consumer ABS (credit card debt), and 0.1% diversified REIT securities. The portfolio is managed by UBS until the scheduled maturity date on July 30, 2010.
Given Fitch's view of concentration and the current credit quality of the portfolio, the credit enhancement levels are not sufficient to justify the current ratings of all of these notes.
Fitch released updated criteria on April 30, 2008 for Corporate CDOs and, at that time, noted it would be reviewing its ratings accordingly to establish consistency for existing and new transactions. As part of this review, Fitch makes standard adjustments for any names on Rating Watch Negative or Outlook Negative, reducing such ratings for default analysis purposes by two and one notch, respectively. Fitch has noted its review will be focused first on ratings most exposed to risks it has highlighted in its updated criteria. Committees are also reviewing transactions that are least impacted by the new criteria and/or portfolio migration. Resolution of these Rating Watches will depend on the plans managers/arrangers may choose to execute and communicate to address these concerns.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
Fitch Ratings
Derek Miller, +1-312-368-2076 (Chicago)
Kevin Kendra, +1-212-908-0760 (New York)
Sandro Scenga, +1-212-908-0278
(Media Relations, New York)
