Fitch Ratings has downgraded three classes of notes issued by CHYPS CBO 1999-1 Ltd./Corp. (CHYPS CBO 1999-1). Additionally, Fitch has assigned Recovery Ratings (RRs) to two of the classes. A detailed list of rating actions follows at the end of this press release.
This review was conducted under the framework described in the reports 'Global Structured Finance Rating Criteria', 'Global Rating Criteria for Corporate CDOs', and 'Criteria for Structured Finance Recovery Ratings'.
The class A-2 notes of CHYPS CBO 1999-1 are insured for interest and principal by Financial Security Assurance Inc (FSA). On Oct. 12, 2009, Fitch downgraded the rating of FSA to 'AA' from 'AA+', removed the rating from Rating Watch Negative, and assigned a Negative Rating Outlook. Therefore, the rating of the class A-2 notes of CHYPS CBO 1999-1 is also downgraded to 'AA', removed from Rating Watch Negative, and assigned a Negative Rating Outlook.
CHYPS CBO 1999-1 is a collateralized debt obligation (CDO) that closed Jan. 7, 1999 and is managed by Delaware Investment Advisers. CHYPS CBO 1999-1 has a portfolio composed of three high yield corporate bonds, all of which are defaulted, and three equity securities, for which Fitch assigns no value. There were insufficient proceeds at the August 2009 payment date to make any interest payments on any of the notes, leading to a drawdown of the insurance policy with FSA to make the class A-2 interest payment. According to the terms of the Indenture, failure to pay timely interest on any payment date to the class A-1L, A-1, A-2 (in each case determined without giving effect to drawings under the insurance policy), A-3A or A-3B notes will constitute an Event of Default. The classes A-2, A-3A and A-3B notes are all rated to timely interest and ultimate principal payments. Since the classes A-3A and A-3B notes did not receive their interest payment at the August 2009 payment date, they have defaulted under the contractual terms of the indenture.
According to the asset manager, the remaining securities are expected to have little to no recovery value. Fitch expects that the limited proceeds in the principal and interest accounts will be used to pay fees and expenses, the class A-2 note interest, and perhaps partial class A-3A and A-3B note interest at the next payment date in February 2010. While the class A-2 notes should continue to perform due to the insurance policy provided by FSA, Fitch expects significant impairment to the class A-3A and A-3B notes.
Fitch has taken the following rating actions on the following classes of notes issued by CHYPS CBO 1999-1:
--$1,636,160 class A-2 notes downgraded to 'AA' from 'AA+'; removed from Rating Watch Negative and assigned Negative Outlook;
--$41,000,000 class A-3A notes downgraded to 'D' from 'C'; Recovery Rating revised to 'RR6' from 'DR6';
--$14,851,485 class A-3B downgraded to 'D' from 'C'; Recovery Rating revised to 'RR6' from 'DR6'.
These rating actions reflect the application of Fitch's current criteria which are available at 'www.fitchratings.com' and specifically include the following reports:
--'Global Structured Finance Rating Criteria' (Sept. 30, 2009);
--'Global Rating Criteria for Corporate CDOs' (April 30, 2008);
--'Criteria for Structured Finance Recovery Ratings' (Aug. 17, 2009).
Additional information is available at 'www.fitchratings.com'.
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