Fitch Downgrades Athilon; Off Rating Watch Negative

NEW YORK--(BUSINESS WIRE)--Fitch has removed from Rating Watch Negative and downgraded Athilon Capital Corp. (ACC) and Athilon Asset Acceptance Corp. (AAC) (together, Athilon) as well as seven classes of notes. In addition, a Negative Rating Outlook has been assigned to Athilon's Issuer Default Ratings (IDRs). The following actions are effective immediately:

--Athilon Capital Corporation IDR downgraded to 'AA'/Outlook Negative from 'AAA'

--Athilon Asset Acceptance Corporation IDR downgraded to 'AA'/Outlook Negative from 'AAA';

--$62,500,000 senior subordinated deferrable interest notes, series A downgraded to 'BBB' from 'AAA';

--$62,500,000 senior subordinated deferrable interest notes, series B downgraded to 'BBB' from 'AAA';

--$62,500,000 senior subordinated deferrable interest notes, series C downgraded to 'BBB' from 'AAA';

--$62,500,000 senior subordinated deferrable interest notes, series D downgraded to 'BBB' from 'AAA';

--$100,000,000 senior subordinated deferrable interest notes, series E downgraded to 'BBB' from 'AAA';

--$150,000,000 subordinated deferrable interest notes, series A/B downgraded to 'BB' from 'AA';

--$50,000,000 subordinated deferrable interest notes, series C downgraded to 'BB' from 'AA'.

Athilon is a credit derivative products company (CDPC) which sells protection primarily on tranches of corporate collateralized debt obligations (CDOs) to various counterparties.

The actions are the result of exposure to two structured finance CDOs (SF CDOs) for which Athilon sold protection to counterparties. These transactions have experienced significant negative ratings migration in their underlying collateral assets. The Negative Outlook on the IDRs reflects the continued potential for future negative ratings migration in the SF CDOs to which Athilon is exposed, and challenges these pose to Athilon's capitalization and business model.

The smaller of the two SF CDO transactions, which is rated by Fitch, has experienced meaningful negative rating migration, with the rating of the most senior tranche downgraded to 'CCC' from 'AAA'. The second transaction, which is not rated by Fitch, has also experienced recent negative ratings migration in its underlying assets. Fitch's expectations for losses in the underlying portfolios of the CDOs, indicates a material probability of impairment of the classes of notes for which Athilon sold protection. In its analysis, Fitch took into account that credit events may only be called beginning in 2014, which may delay the payments for any realized losses on the underlying SF CDO positions.

Fitch's rating definitions and the terms of use 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 are also available from the 'Code of Conduct' section of this site.