Fitch Affirms SPICES 2005-1; Revises Outlook to Negative
CHICAGO -- December 18, 2012
Fitch Ratings has affirmed the rating of the notes issued by SPICES Finance
Limited Series 2005-1 (SPICES 2005-1, the Issuer) and revised the Rating
Outlook to Negative from Stable:
--JPY5,363,000,000 notes at 'Asf'; Outlook Negative.
Fitch's rating of the notes is credit-linked to the rating of the qualified
investment, AT&T senior unsecured notes (ISIN US78387GAQ64, rated 'A', with a
Negative Outlook). Fitch affirmed the Issuer Default Rating of AT&T Inc. and
revised the Outlook to Negative from Stable on Nov. 14, 2012. Fitch monitors
the performance of the underlying risk-presenting entity and adjusts the
rating accordingly through application of its current credit-linked notes
(CLN) criteria, 'Global Rating Criteria for Single- and Multi-Name
Credit-Linked Notes', dated Feb. 22, 2012.
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 and currency exchange risk. However, use of this
make-whole call provision remains highly unlikely, since such a call would
cost the qualified investment issuer a premium of approximately 130% over
current par value. Additionally, the exercise of the make-whole call provision
on the qualified investment at the current premium would not result in a loss
to the notes at current exchange rates. 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.
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 a $50 million notional of the qualified
investment, which serves as the collateral for the swap between the Issuer and
Australia & New Zealand Banking Group (ANZ Bank), as the swap counterparty.
ANZ Bank will make semi-annual interest payments in JPY to the noteholders and
the Issuer will pass through the interest received on the qualified
investments to ANZ Bank. 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.
Additional information is available at 'www.fitchratings.com'. The ratings
above were solicited by, or on behalf of, the issuer, and therefore, Fitch has
been compensated for the provision of the ratings.
The information used to assess this rating was sourced from the originator
(Morgan Stanley) and the public domain.
Applicable Criteria & Related Research:
--'Global Rating Criteria for Single- and Multi-Name Credit-Linked Notes'
(Feb. 22, 2012);
--'Counterparty Criteria for Structured Finance Transactions' (May 30, 2012).
Applicable Criteria and Related Research:
Counterparty Criteria for Structured Finance Transactions
Global Rating Criteria for Single- and Multi-Name Credit-Linked Notes
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Primary Surveillance Analyst
Aaron Hughes, +1-312-368-2074
70 W. Madison Street
Chicago, IL 60602
Derek Miller, +1-312-368-2076
Sandro Scenga, New York, +1 212-908-0278
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