Fitch Ratings has assigned the following ratings to the notes issued by NCUA Guaranteed Notes Trust 2010-R1:
--$3,280,000,000 senior I-A notes 'AAAsf', Outlook Stable;
--$566,500,000 senior II-A notes 'AAAsf', Outlook Stable.
Fitch's ratings of the notes are based on the guaranty agreement between the National Credit Union Association (NCUA) and the issuer. NCUA guarantees the timely payment of interest and principal when due and payable up to and including the legal final maturity date in October 2020. The NCUA's obligations under the guaranty agreement are backed by the full faith and credit of the United States of America (the U.S. government; rated 'AAA/F1+' with a Stable Outlook by Fitch). The ratings of the notes are therefore credit-linked to the rating of the U.S. government.
Proceeds from the issuance of the senior notes and the owner trust certificates were used to purchase a portfolio of 126 private-label residential mortgage-backed securities (RMBS) previously owned by U.S. Central Federal Credit Union, a credit union that was taken into conservatorship by the NCUA board in March 2009. The collateral will be split into two pools that each collateralizes its respective series of senior notes, with no cross-collateralization between the two series.
The series I collateral pool contains 102 floating-rate pay assets with a notional value of approximately $3.7 billion. Of the series I collateral assets, 21.4% are rated 'BBB-' or above while 59.5% are in the 'CCC' category or below. The weighted average rating of the series I collateral is 'B-/CCC+'.
The series II collateral pool contains 24 fixed-rate pay assets with a notional value of approximately $0.7 billion. Of the series II collateral assets, 32.9% are rated 'BBB-' or above, while 20.7% are in the 'CCC' category or below. The weighted average rating of the series II collateral is 'B/B-'.
The key rating drivers for the transaction include the NCUA guaranty and, to a lesser extent, the issuer's dependence on several counterparties.
The NCUA, which is unrated, is providing a full and unconditional guaranty of timely payment of interest and any due principal to each class of senior notes. If funds collected from the underlying collateral are insufficient to satisfy periodic interest and any due principal payments, the indenture trustee will notify the NCUA of the amount of the shortfall prior to the related payment date. A guaranty payment will then be made by the NCUA to the indenture trustee in an amount equal to the related interest and/or principal shortfall.
Given the distressed nature of many of the underlying assets, Fitch considers the performance of the senior notes to be highly dependent on the NCUA's ability to make timely payments of its obligations under the guaranty agreement. In Fitch's opinion, the NCUA has the appropriate operational and financial capacities to fulfill its obligations under the guaranty agreement.
The secondary rating driver is represented by the counterparties that provide various services to the transaction. The structure provides for sufficient mitigants to this counterparty risk and de-links the ratings of the notes from the ratings of these counterparties.
A detailed description of the criteria applied in the analysis is provided in Fitch's Full Rating Report entitled 'NCUA Guaranteed Notes Trust 2010-R1' available at 'www.fitchratings.com'.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria & Related Research:
--'Global Structured Finance Rating Criteria' (Aug. 16, 2010);
--'Counterparty Criteria for Structured Finance Transactions' (Oct. 22, 2009).
Applicable Criteria and Related Research:
Counterparty Criteria for Structured Finance Transactions
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=475588
Global Structured Finance Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=547326
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