Fitch Ratings has placed the following class of notes from Landgrove Synthetic CDO on Rating Watch Negative:
Landgrove Synthetic CDO
--CLP4,200,000,000 series 2007-2 notes due 2017, rated 'A-'; Rating Watch Negative.
The rating watch negative actions reflect Fitch's view on the credit risk of the rated notes following the release of its new Corporate CDO rating Criteria.
Key drivers of this transaction's credit risk include:
--Portfolio credit risk with an average portfolio quality of 'BBB',with 9.1% of the portfolio rated below investment grade;
--Portfolio migration risk with 4.5% of the portfolio on Rating Watch Negative and 18.4% of the portfolio on Outlook Negative;
--Industry concentration of 50.1% in the three largest, made up of 35.5% in banking & finance, 9.1% in telecommunications and 5.5% in retail (general).
--Emerging market exposure of 13.0% in the three largest, made up of 4.3% in Russia, 2.7% in Mexico and 1.8% in Middle East and North Africa.
Given Fitch's view of concentration and the current credit quality of the portfolio, the current level of credit enhancement of 5.7% for the notes is not sufficient to justify the current rating of these notes.
Resolution of the Rating Watch Negative status will incorporate any changes made to the portfolio or the transaction along with additional portfolio migration. Fitch is developing criteria for emerging market exposure and such criteria will be reflected in the resolution of the Rating Watch Negative status.
Landgrove Synthetic CDO is a partially funded synthetic CDO referencing a portfolio of primarily investment grade corporate obligations. The portfolio maximum notional amount is USD11bn. At close, proceeds from the issuance of the notes were used to collateralise credit default swaps (CDS) between the issuer and Goldman Sachs Capital Markets, the CDS counterparty (guaranteed by Goldman Sachs Group, rated 'AA-'(AA minus)/'F1+'). The portfolio is actively managed by Wellington Management Company.
Fitch released updated criteria on April 30, 2008 for Corporate CDOs and, at that time, noted it would be reviewing its ratings accordingly to establish consistency for existing and new transactions. As part of this review, Fitch makes standard adjustments for any names on Rating Watch Negative or Outlook Negative, reducing such ratings for default analysis purposes by two and one notch, respectively. Fitch has noted its review will be focused first on ratings most exposed to risks it has highlighted in its updated criteria. Committees are also reviewing transactions that are least impacted by the new criteria and/or portfolio migration. Resolution of these Rating Watches will depend on the plans managers/arrangers may choose to execute and communicate to address these concerns.
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.