Fitch: New Defaults Minimal for Corporate CDOs Exposed to GM

NEW YORK & LONDON--(Business Wire)--
Fitch Ratings says that one Fitch-rated synthetic corporate CDO tranche is at
imminent risk of default on exposure to General Motors Corporation (GM)
following GM's Ch. 11 filing announced today.

'The impact of GM's filing on CDOs has been muted because CDO exposure to the
company has reduced as its credit metrics deteriorated,' says Managing Director
Kevin Kendra. 'Furthermore, Fitch has applied high loss assumptions to GM in its
CDO analysis, which is reflected in Fitch's current CDO ratings.'

GM's presence in Fitch's synthetic CDO index has declined significantly in
recent years. In June 2005, GM was one of the most pervasive names in Fitch's
synthetic CDO index, appearing in 217 CDOs respectively. Now Fitch currently
rates just 41 CDOs with exposure to GM globally.

Synthetic corporate CDOs typically reference entities with investment-grade
ratings while GM has had speculative-grade ratings for several years. As GM was
downgraded to a speculative-grade rating throughout 2005, it was less frequently
referenced by new CDOs. Over time, many of these CDOs with GM exposure matured
or were voluntarily unwound. By December 2006, exposure to GM had significantly
decreased to 110 CDOs. Given prolonged credit deterioration of GM between 2005
and 2009, the CDOs to be most impacted by a potential credit event of either
company are those issued in 2005 or earlier. Of the 41 CDOs with exposure to GM,
approximately 95% were issued in 2005 or earlier.

As GM's credit rating migrated downward, Fitch adjusted its default and recovery
expectations accordingly in its CDO analysis. Upon evaluation of CDOs for
exposure to distressed financial institutions in October 2008, GM's credit
rating had migrated to 'CCC' indicating default was a real possibility. Fitch's
analysis at that time assumed a relatively high expected loss, which was
previously incorporated into its CDO ratings. As of its May 1, 2009 rating
action on transactions with exposure to credit events in 2009 and high exposure
to 'CCC' and lower rated names, GM's credit rating was 'C' indicating an
imminent default which Fitch included in its credit and recovery rating
analysis.

To gauge the impact of the credit event caused by GM, Fitch analyzed these CDOs
assuming a recovery of 10% for senior unsecured debt. In this hypothetical
scenario only one U.S. transaction would potentially default and suffer a loss.
This tranche is currently rated 'C'. This analysis demonstrates that the credit
event and potentially low recoveries on GM would have minimal impact on Fitch
rated CDOs. Given that the current ratings within the automotive sector already
reflect significant strain, much of the uncertainty surrounding CDOs depends on
timing of defaults and actual realized recoveries.

Taking these matters into account, however, 'the long-term implications of a
bankruptcy filing by GM and the impact on the U.S. economy and other corporate
credits may place additional strain on corporate CDO transactions,' adds Kendra.
For example, the automotive part supplier Visteon recent filed chapter 11, and
Fitch expects low recoveries. Visteon, referenced across 29 transactions, is no
longer widely referenced and was rated 'C' at the time of the May 1 CDO rating
actions, as such losses were already incorporated into Fitch's credit view.
However, if more automotive suppliers continue to default with below average
recoveries, CDOs with exposure to this sector will continue to suffer.

Fitch will continue to monitor this sector as the situation unfolds.

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
Kevin Kendra, 212-908-0760, New York
Jeffery Cromartie, (0) 20 7664 0072, London
or
Media Relations:
Julian Dennison, 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