Fitch Downgrades 2 Classes of PPM High Yield CBO.NEW YORK New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of -- Fitch Ratings Fitch Ratings An international rating agency for financial institutions, insurance companies, and corporate, sovereign, and municipal debt. Fitch Ratings has headquarters in New York and London and is wholly owned by FIMALAC of Paris. downgrades two classes of notes issued by PPM High Yield CBO CBO See: Collateralized Bond Obligation. I Company Ltd. (PPM High Yield CBO I). The following rating actions are effective immediately: -- $93,662,465 class A-1 notes downgraded to 'B' from 'BB'; -- $22,000,000 class A-2 accreting notes affirmed at 'AAA'; -- $55,700,000 class A-3 notes downgraded to 'C' from 'CC'; -- $73,100,000 class B notes remain at 'C'. PPM High Yield CBO I is a collateralized bond obligation Collateralized Bond Obligation (CBO) Investment-grade bonds backed by a collection of junk bonds with different levels of risk, called tiers, that are determined by the quality of junk bond involved. (CBO) managed by PPM America. PPM High Yield CBO I closed on March 2, 1999. The notes are supported by a portfolio primarily consisting of high-yield corporate bonds. These rating actions are due to the decline in credit enhancement Credit Enhancement A method whereby a company attempts to improve its debt or credit worthiness. Notes: Credit enhancements take many different forms. An example of a credit enhancement would be conversion rights added on to a debt instrument in order to lower the issuing available to support the liabilities. This decline stems from two primary factors: exposure to Calpine unsecured debt Unsecured debt Debt that does not identify specific assets that the debtholder is entitled to in case of default. and continued diversion of principal proceeds to pay current interest primarily to the class A-3 and class B noteholders. PPM America sold most of its initial $14.5 million Calpine exposure in late 2004 and throughout 2005. As of the Dec. 16, 2005 trustee report, $3.25 million remained in the portfolio. This excludes the $3.25 million position, which was sold on Dec. 6, 2005 for a price of 27.5%. In addition, since the last rating action on Feb. 23, 2005, approximately $9.2 million of principal proceeds were applied to pay interest to the notes. Fitch expects this trend to continue for the foreseeable future resulting in the class A-1 notes being undercollateralized in approximately two to three payment periods. However, there are two possible scenarios, which could benefit the class A-1 noteholders. First, if the interest default test is activated, interest payments to the class A-3 and B notes would be used to redeem the class A-1 notes. The test would require that either the cumulative default level reach 54% or the current default percentage reach 8% in any given payment period. As the collateral portfolio becomes more concentrated, there is a chance that the current portion of the interest default test will be triggered thus halting halt·ing adj. 1. Hesitant or wavering: a halting voice. 2. Imperfect; defective: halting verse. 3. Limping; lame. the leakage of principal to pay interest. The second and more remote is the possibility of an interest shortfall to the class A-1 notes, which would trigger an event of default allowing the controlling class to accelerate the life of the transaction. The class A-3 and B noteholders will receive interest payments as long as sufficient principal proceeds are available; however, the class A-3 and B noteholders will likely suffer a total loss of principal. The class A-2 accreting notes were defeased with a U.S. treasury U.S. Treasury Created in 1798, the United States Department of the Treasury is the government (Cabinet) department responsible for issuing all Treasury bonds, notes and bills. Some of the government branches operating under the U.S. Treasury umbrella include the IRS, U.S. instrument maturing on May 15, 2011. The 'AAA' rating on the class A-2 notes reflects the treasury strip rating collateralizing the notes. Fitch will continue to monitor and review this transaction for future rating adjustments. Additional deal information and historical data are available on the Fitch Ratings web site at 'www.fitchratings.com'. (For more information on the Fitch VECTOR Model, see 'Global Rating Criteria for Collateralised Debt Obligations,' dated Sept. 13, 2004 and also available at 'www.fitchratings.com'. Fitch's rating definitions and the terms of use Terms of Use are rules set up by the owner of an intellectual property or service to govern how they may be legally used. In many cases, terms of service are used as a contractual agreement between a company and users of a service they provide. 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 Policies and Procedures are a set of documents that describe an organization's policies for operation and the procedures necessary to fulfill the policies. They are often initiated because of some external requirement, such as environmental compliance or other governmental are also available from the 'Code of Conduct' section of this site. |
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