Fitch Seeks Comment on Structured Finance Counterparty Criteria Proposals

NEW YORK & LONDON--(Business Wire)--
Fitch Ratings says today that it is proposing new counterparty risk criteria
options reflecting concerns that structural mechanisms based around counterparty
triggers alone may not be sufficient to isolate securitisation transactions from
the credit risk of the counterparties on which they rely. The agency is seeking
market feedback on the new proposals published today.

The new criteria options address the potential interaction between rating
triggers and so-called 'cliff' risk which has been highlighted by recent bank
failures. This relationship can itself undermine the effectiveness of rating
triggers as a mitigant, as the extent of actions which have to be taken on
trigger breaches can further impact the counterparty's credit profile in the
near term. Other aspects discussed include 'jump-to-default' risk and the
relative ability to replace counterparties when necessary.

"Fitch's proposed criteria options suggest that there are a number of
alternatives to the current approach, including posting collateral from day one,
raising triggers to higher levels or supplementing rating triggers with Fitch's
Support Floor ratings. All provide enhanced mitigants to problems such as cliff
risk, but equally each option has its own drawbacks as well as advantages," says
Stuart Jennings, Managing Director, Fitch Ratings.

Fitch is planning to update its structured finance counterparty criteria to
reflect the significant evolution in the market environment in recent months.
Following extensive internal discussion and analysis, the agency has published
an exposure draft today in which it outlines a number of possible options
through which counterparty risk could be addressed in the rating of structured
finance transactions. Given generally increased counterparty risk for structured
finance transactions, Fitch believes that existing structural protections based
around rating triggers need to be either supplemented or replaced.

"Likelihood of counterparty replacement has also been a focus of the review.
Esoteric and off-market counterparty positions have always been a feature of
structured finance transactions," says Andreas Wilgen, Senior Director, Fitch
Ratings. "Sourcing replacement counterparties for the most 'plain vanilla'
counterparty exposure in the current market environment is difficult. The
exposure draft also examines ways in which the replaceability of a counterparty
position might be better assessed."

Fitch recognises that - depending upon market reaction - changing counterparty
criteria with respect to its structured finance ratings could have an impact on
its ratings. It could also impact the way market participants choose to address
counterparty risk when structuring new transactions. The intention of this
report is to open a dialogue with the market on this issue and the options
outlined, with the aim of gathering extra information and hearing different
points of view. In particular, the agency invites comments on the various
questions that are framed throughout the report. The information gathered will
be factored into developing the final criteria amendments to be developed after
the consultation period.

The report, 'Exposure Draft: Counterparty Risk in Structured Finance
Transactions', is available at www.fitchratings.com. The consultation period
closes on 1 May 2009. Feedback can be sent to sffeedback@fitchratings.com.

Fitch will host a teleconference to present the proposals tomorrow, Tuesday 31
March 2009. Further details will follow in a separate announcement.

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
Stuart Jennings, +44 20 7417 6271, London
Andreas Wilgen, +44 20 7417 6332, London
Glenn Costello, 212-908-0307, New York
Ben McCarthy, +61 2 8256 0388, Sydney
or
Media Relations:
Julian Dennison, +44 020 7682 7480, London
Email: julian.dennison@fitchratings.com
Sandro Scenga, 212-908-0278, New York
Email: sandro.scenga@fitchratings.com

Copyright Business Wire 2009