TEXT-Fitch cuts 2 synthetic corporate CDOs

June 13 - Fitch Ratings has downgraded Corsair (Cayman Islands) No.4 Ltd Series 6 notes and Omega Capital Investments Plc Series 40's (Omega 40) class B notes. The Outlook on Omega 40's class A notes has been revised to Stable from Negative. Both transactions are synthetic arbitrage corporate CDOs (SCDOs) arranged out of non-Japan Asia. The rating actions are listed as below.

Corsair (Cayman Islands) No.4 Ltd Series 6 (Corsair No.4 Series 6)

AUD105m notes due March 2014 downgraded to 'Csf' from 'CCsf'; Recovery Estimate of 0%

Omega Capital Investments Plc Series 40 (Omega 40)

AUD26.7m class A notes due June 2012 affirmed at 'Bsf'; Outlook revised to Stable from Negative

AUD11.9m class B notes due June 2012 downgraded to 'Csf' from 'CCsf'; Recovery Estimate revised to 15% from 0%

The downgrades follow the receipt of a credit event notice of Residential Capital, LLC (ResCap), one of the corporate names referenced in both transactions, which is likely to erode the remaining credit enhancement (CE) for Corsair No.4 Series 6 and the class B notes of Omega 40 and contribute to losses of both notes.

The Outlook on Omega 40's class A notes was revised to Stable from Negative due to the short remaining life to its scheduled maturity in June 2012. The affirmation reflects that the available CE is commensurate with its current rating level.

For Corsair No. 4 Series 6, 12 credit events have occurred since the transaction closed in 2006 and 11 of them have had their valuations completed. The confirmed losses have eroded the CE to 0.4% of the outstanding reference portfolio notional. The valuation of ResCap is yet to be finalised. Given the limited CE and the fact that the outstanding reference portfolio still has about 3% of assets in the 'CCC' category or below, it is likely that the notes will default and incur a loss prior to their scheduled maturity in March 2014.

For Omega 40, eight credit events have occurred since the transaction closed in 2006 and seven of them have had their valuations completed. The confirmed losses have eroded the CE of the class A and class B notes to 2.3% and 0.02% of the outstanding reference portfolio balance, respectively. Given the negligible CE available for the class B notes, the default of this class is inevitable upon the completion of the valuation of ResCap. Fitch estimates that, upon maturity, around 85% of the class B note amount would be retained until the valuation and loss settlement of ResCap is finalised. Once the loss settlement is completed, any residual amount retained for the class B notes will be returned to class B noteholders. The latest redemption date of the class B notes is 20 June 2013.