Fitch IBCA Issues Expected Rtgs For Blue Stripe 1999-1 Ltd.

NEW YORK--(BUSINESS WIRE)--June 14, 1999--

Fitch IBCA expects to rate the notes issued by Blue Stripe 1999-1 Ltd., a limited liability company incorporated in Jersey, as follows:

--$458,500,000 class A floating-rate notes, `AAA';
--$81,500,000 class B floating-rate notes, `A`;
--$35,000,000 class C floating-rate notes, `BBB`; and
--$70,000,000 class D floating-rate notes, `BB`.

The three senior-most classes will be issued in two tranches each, to provide for issuance in Euro: class A1, B1, C1 will be U.S. dollar-denominated; class A2, B2, and C2 will be Euro- denominated. Class D will not be tranched, but issued in U.S. dollars.

The notes are being issued primarily to transfer credit risk held by Deutsche Bank AG relating to a portfolio of the bank's North American and U.K. corporate and financial institution credits, and thereby improve the bank's return on regulatory and economic capital. Each class will be secured by the issuer's rights and interests in the corresponding funding note, which for classes A2, B2, and C2 will include an interest in a currency swap (Euro to U.S. dollar). The funding notes are being issued by Blue Stripe Funding Ltd. (Funding Ltd.) simultaneously with the issuance of the rated notes. Funding Ltd. will enter into a financial contract with Deutsche Bank AG, which in essence is a credit default swap on a pool of reference assets of up to $5 billion. The reference pool of credits may include loans, guarantees, letters of credit, other loan-related exposures, and securities. All reference credits will have been underwritten by Deutsche Bank according to its credit policies and procedures. Default risk on the reference credits will be borne by the noteholders.

The expected ratings reflect the quality and high diversification of the reference credits, the 'AAA' rating of the collateral, the structure of the transaction (including credit enhancement levels), and Deutsche Bank's strength as financial contract and swap counterparty as well as holder of the 2.1% subordinate non-rated class and the initial holder of approximately 64% of the class expected to be rated 'BB'.

The default risk being transferred in this transaction is on a highly diverse pool of credits with obligor concentrations limited to between 0.5% to 1.5%, dependent on rating, with the lower-rated credits limited most. The pool will have a weighted average rating of 'BBB+', no exposure to below investment grade countries, and 90% of the obligors associated with the reference credits will be domiciled in the U.S., U.K., Canada, or Germany. In connection with rating Blue Stripe 1999-1, Fitch IBCA performed an extensive mapping of Deutsche Bank's portfolio to external ratings as well as an on-site evaluation of Deutsche Bank's underwriting standards. Deutsche Bank will remain the lender of record on the reference credit and will agree to administer the credits as if it had not transferred credit risk through the financial contract. Deutsche Bank may substitute reference credits subject to specific criteria.

Transaction Structure - Funding Ltd. will purchase 'AAA' rated Pfandbriefe (German public sector loan-backed securities) as collateral for Deutsche Bank as financial contract counterparty and the noteholders. Proceeds of the Pfandbriefe will be used to pay Deutsche Bank for losses on reference credits in the pool, and then to repay principal to the noteholders. In return for this credit protection, Deutsche Bank will pay a coupon which will cover the expenses of the transaction and (along with investment earnings on the collateral), the coupon on the rated notes. The transaction is structured as a three-year transaction, with extension to five years at Deutsche Bank's option upon the posting of 3.15% in additional collateral. Liquidity and valuation risk associated with the Pfandbriefe is minimized in this transaction by having the Pfandbriefe mature on or prior to the expected date for payments due Deutsche Bank under the financial contract and principal repayment of the notes. This price/liquidity risk is not eliminated in that it could impact the noteholders if an early termination were to occur, which would result from either a tax redemption event or default by Deutsche Bank under the financial contract.

Enhancement for the notes will be provided by the subordination of principal and interest payments on classes B through E to class A, subordination of principal and interest payments on classes C through E to class B, and subordination of principal and interest payments on classes D and E to class C. The `BB' class D will be protected by the 2.1% non-rated tranche. The `AAA' notes are expected to have 5.83% enhancement; the `A' notes, 4.2%; the `BBB' notes, 3.5%. Fitch IBCA tested these levels against its stressed default and recovery numbers for this collateral, as well as against its obligor matrix, which protects investors against simultaneous defaults of the largest obligors in the pool, and found the enhancement levels more than adequate for the expected ratings.