RPT-Fitch Upgrades Faxtor ABS 2005-1

Thu Sep 26, 2013 5:41am EDT

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Sept 26 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings has upgraded Faxtor ABS 2005-1 B.V.'s notes, as follows:

Class A-1 floating-rate notes due 2070 (XS0235143970): upgraded to 'Asf' from 'BBBsf'; Outlook Stable

Class A-2E floating-rate notes due 2094 (XS0235144358): upgraded to 'BB+sf' from 'BBsf'; Outlook Stable

Class A-2F fixed-rate notes due 2094 (XS0235144945): upgraded to 'BB+sf' from 'BBsf'; Outlook Stable

Class A-3 fixed-rate notes due 2094 (XS0235146056): affirmed at 'Bsf' from 'Bsf', Outlook revised to Stable from Negative

Class A4 floating-rate notes due 2094 (XS0235146569): affirmed at 'CCsf'

Class B floating-rate notes due 2094 (XS0235147617): affirmed at 'CCsf'


The upgrade reflects the notes' levels of credit enhancement due to the deleveraging of the underlying portfolio.

The structure is deleveraging and the class A-1 notes have been repaid by approximately EUR41.4m since the last review and now represent 33% of their original balance. The deleveraging is a result of natural portfolio amortisation, as well as interest diversion mechanisms due to the breaching of some over-collateralisation tests. As a result, credit enhancement for the rated notes has increased. For instance, credit enhancement for the class A-1 notes has increased by 10.34% since the last review.

The class A-3 over-collateralisation test has improved since the last review and is now in compliance. As a consequence, deferred interest due on the class A-4 notes has been paid back to the noteholders. The class B and C over-collateralisation tests are still failing and the notes have been accumulating deferred interest since January 2010. The interest coverage remains in compliance.

Fitch analysed the exposure to interest rate risk. The structure is currently over-hedged and benefits from an interest rate swap where the counterparty pays a fixed rate whereas Faxtor ABS 2005-1 pays three-month EURIBOR. As a result, additional excess spread is being used to repay the class A-1 notes.. After the maturity of the swap, the structure will be under-hedged and exposed to interest rate risk as the class A2-F and A3 notes pay a fixed interest rate whereas all the asset in the pool pay a floating interest rate.

The affirmation of the class A-3, A-4 and B notes reflect the extension risk of the portfolio assets. A material risk for these tranches is that the portfolio assets' maturity may extend beyond their reported weighted-average expected life and prolong the risk horizon of the portfolio.

Faxtor ABS 2005-1 is a securitisation of European structured finance assets of mainly mezzanine quality. The two largest industry sectors in the portfolio are RMBS with 53% of the portfolio and CMBS with 18%. The portfolio is concentrated in the UK with almost 43% of the portfolio. Peripheral eurozone exposure accounts for 21.4% of the portfolio and is concentrated in Italian and Spanish RMBS. The asset performance has remained stable and cumulative defaults have increased by EUR1.82m.


Applying a 1.25x default rate multiplier to all assets in the portfolio would result in a downgrade of one to two rating category for the rated notes from the current rating levels. Applying a 0.75x recovery rate multiplier to all assets in the portfolio would not result in a downgrade for the rated notes from the current rating levels.

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