Fitch: Change in Swap Counterparty Would Not Affect Ratings of Five CDOs

2009-11-05 22:05:03 -

Fitch Ratings was notified of the intention to change the interest rate swap, interest rate cap, and basis swap counterparty (Novation Transactions) of five structured finance CDO transactions to Barclays Bank PLC (Barclays), rated 'AA-/F1+' with a Stable Outlook by Fitch, from AIG Financial Products Corp (AIG), rated 'BBB/F1' with an Evolving Outlook.

As a result of the Novation Transactions, Barclays

will replace AIG as a counterparty in the following five transactions.

--Broderick CDO I, Ltd.

--Toro ABS CDO I, Ltd.

--Summer Street 2005-HG 1, Ltd.

--Glacier Funding CDO II, Ltd.

--Glacier Funding CDO III, Ltd.

In reviewing the Novation Transactions documents, Fitch applied its current counterparty criteria 'Counterparty Criteria for Structured Finance Transactions', dated Oct. 22, 2009. Under the criteria, the minimum counterparty rating for notes rated 'AA-' or better are 'A/F1', and therefore Barclays' current rating meets this requirement.

Fitch also reviewed the collateral posting requirements as specified in the Credit Support Annex (CSA) between Barclays and the respective CDO transactions. Similar to the CSAs between AIG and the CDOs, in those circumstances where the new CSAs call for collateral to be posted, the remedial period is specified to be no longer than thirty days upon the counterparty's downgrade below a certain threshold. This remedial period is longer than Fitch's expectation that such action be effected within fourteen days. However, given the current ratings on the notes of the affected CDO transactions and out-of-the money strike rates on the interest rate hedges involved, Fitch believes that this deviation from its current counterparty criteria has an immaterial impact on the ratings of notes issued by the CDOs.

In summary, Fitch does not believe that the Novation Transactions will impact the ratings on any of the notes.

This commentary does not address whether or not the Novation Transactions are permitted by the terms of the respective CDO documents.

Nor does it address whether the counterparty change is in the best interests of, or prejudicial to, some or all of the holders of each of the two CDOs.

Fitch emphasizes that while the new counterparty's rating satisfies Fitch's counterparty criteria within the context of the affected CDOs at the time of this review, if the counterparty becomes ineligible in the future under Fitch's criteria effective at that time, Fitch expects that the issuer inform it of the intended course of action, regardless of the provisions in the transaction documentation.

This review was conducted under the framework of Fitch's current counterparty criteria available at www.fitchratings.com : cts.businesswire.com/ct/CT?id=smartlink&url=http%3A%2F%2Fwww .. .

'Counterparty Criteria for Structured Finance Transactions', dated Oct.

22, 2009.

Additional information is available at www.fitchratings.com : cts.businesswire.com/ct/CT?id=smartlink&url=http%3A%2F%2Fwww .. .

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Fitch RatingsAlina Pak, +1-312-368-3184 (Chicago)Kevin
Kendra, +1-212-908-0760 (New York)orSandro Scenga,
+1-212-908-0278(Media Relations, New York) sandro.scenga@fitchratings.com : mailto:sandro.scenga@fitchratings.com