RPT-Fitch Affirms FORCE TWO

Thu Apr 17, 2014 8:50am EDT

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April 17 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings has affirmed FORCE TWO's notes as follows:

Class A notes (ISIN: XS0299041037): paid in full

Class B notes (ISIN: XS0299041896): paid in full

Class C notes (ISIN: XS0299042357): paid in full

EUR9.6m Class D notes (ISIN: XS0299044056): affirmed at 'CCsf'; RE: 50% revised from RE: 0%

EUR9.7m Class E notes (ISIN: XS0299045020): affirmed at 'Csf'; RE: 0%

The transaction is a cash securitisation of profit participation agreements to German SMEs. The portfolio companies were selected by equiNotes Management GmbH, a joint venture of IKB Private Equity GmbH (a subsidiary of IKB Deutsche Industriebank AG ) and Deutsche Bank AG, acting as advisor for the issuer.

KEY RATING DRIVERS

The affirmation of the class D notes at 'CCsf' reflects Fitch's view that default is probable. The affirmation of the class E notes at 'Csf' reflects Fitch's view that default is inevitable.

FORCE TWO reached scheduled maturity in January 2014. The companies' subordinated debt instruments securitised in the pool are bullet loans. They all became due on two dates, shortly before scheduled maturity. The junior class D and class E notes were not repaid in full.

Beyond the scheduled maturity date, four companies are still listed as constituents of the portfolio. As of the last investor report dated 24 January 2014, they had an aggregate outstanding portfolio amount of EUR11.75m. Further, the manager has recovery expectations for two additional obligors. Taking into account negotiated amendment agreements as well as on-going partial repayments by some obligors, Fitch expects belated payments on the outstanding notes from these recoveries still to be effected until legal maturity in January 2018. Fitch has thus revised its Recovery Estimate (RE) for the class D notes to 50% while leaving the RE for the class E unchanged at 0%. REs are forward-looking recovery estimates, taking into account Fitch's expectations for principal repayments on a distressed structured finance security.

RATING SENSITIVITIES

After scheduled maturity, the transaction is primarily sensitive to the recoveries from agreements already in place or still to be negotiated that supervise belated payments (e.g. via standstill agreements, prolongations or enforcement of claims by the insolvency administrator). The transaction is also sensitive to whether or not 2012 and 2013 withholding tax on interest payments under the profit participation agreements will be refunded by the tax authorities as it has been done in the past. The risks are reflected in the current ratings of the notes.

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