NEW YORK--(BUSINESS WIRE)--Fitch Ratings has placed the notes issued by SPICES Finance Limited Series 2005-1 (SPICES 2005-1) on Rating Watch Negative:
--JPY5,363,000,000 notes at 'Asf'.
KEY RATING DRIVERS
Fitch's rating of the notes is credit-linked to the rating of AT&T Inc. (AT&T), the issuer of the qualified investment, AT&T senior unsecured notes (ISIN US78387GAQ64). AT&T's Issuer Default Rating is 'A', Negative Rating Watch.
The rating remains sensitive to Fitch's rating of AT&T. A change in Fitch's rating of the issuer of the qualified investment, would likely result in a revision in the rating of the notes.
SPICES 2005-1 is a credit-linked structure whereby the noteholders obtained credit exposure to the qualified investment via a cross-currency swap. Note proceeds were used to purchase $50 million notional of the qualified investment. The Issuer passes through the interest received on the qualified investments to Australia & New Zealand Banking Group (ANZ Bank) and ANZ Bank makes semi-annual interest payments in JPY to the noteholders. At maturity, the Issuer will pass through the par amount received on the qualified investments to ANZ Bank and in return, ANZ Bank will pay the JPY equivalent using a fixed exchange rate to the noteholders . The notes' rating is delinked from the swap counterparty, ANZ Bank (rated 'AA-/F1+', Outlook Stable) through requirement to collateralize future payments or find a replacement upon ANZ Bank's downgrade below 'A/F1'.
The terms of the qualified investment allow the qualified investment issuer to exercise an early make-whole call. This exercise would cause an early termination event and could expose the SPICES 2005-1 notes to potential termination payments to the swap counterparty and currency exchange risk. However, in Fitch's opinion, exercising of this call is very unlikely, due to the make-whole condition that leads to a substantial premium over par required to be paid by the issuer of the qualified investment. Fitch views the current probability of loss on the notes from the exercise of a make-whole call as sufficiently remote at the current rating level.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria & Related Research:
--'Global Structured Finance Rating Criteria' (August 4, 2014);
--'Counterparty Criteria for Structured Finance and Covered Bonds' (May 14, 2014);
--'Global Rating Criteria for Single- and Multi-Name Credit-Linked Notes' (February 2014).
Applicable Criteria and Related Research:
Global Rating Criteria for Single- and Multi-Name Credit-Linked Notes
Counterparty Criteria for Structured Finance and Covered Bonds
Global Structured Finance Rating Criteria