Fitch Affirms and Revises Outlook for Amber Trust Two
NEW YORK -- October 22, 2013
Fitch Ratings affirms the rating and revises the Outlook for Amber Trust Two
--JPY 6,055,000,000 credit-linked notes at 'BBBsf'; Outlook revised to
Negative from Stable.
KEY RATING DRIVERS
Fitch's rating of Amber Trust Two is credit-linked to Fitch's assessment of
Encana Corporation (Encana). Fitch's assessment of the company is based upon
publicly available information including Fitch's CDS implied rating, NRSRO
ratings and Fitch's internal credit view. The notes' rating is delinked from
the swap counterparty, Morgan Stanley (rated 'A/F1', Outlook Stable by Fitch).
The rating remains sensitive to Fitch's assessment of Encana. A change in
Fitch's assessment of the qualified investment, Encana, would likely result in
a change in the rating of the notes.
Amber Trust Two is a credit linked structure whereby the note holders obtained
credit exposure to Encana via a cross-currency interest rate swap. The note
holders have provided a loan of JPY 6,055,000,000 at a fixed rate of 4.28% to
the issuer, the proceeds of which were used to purchase $50,000,000 of Encana
Corporation (CUSIP 292505AD6) 6.50% bond due Aug. 15, 2034. At each interest
payment date or at maturity, the issuer will pass the corresponding interest
or principal amount of the Encana bond in full to the swap counterparty, who
will then pay the issuer the JPY equivalent of that amount, using a fixed
Encana is permitted to exercise an early make-whole call on its bond. This
exercise would cause an early termination event and could expose the Amber
Trust Two 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 Encana a premium of approximately 140% 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.
Additional information is available at 'www.fitchratings.com'.
The information used to assess this rating was sourced from the swap
counterparty and the public domain.
Applicable Criteria & Related Research:
--'Global Structured Finance Rating Criteria' (May 24, 2013);
--'Global Rating Criteria for Single- and Multi-Name Credit-Linked Notes'
(Feb. 21, 2013).
Applicable Criteria and Related Research:
Global Structured Finance Rating Criteria
Global Rating Criteria for Single- and Multi-Name Credit-Linked Notes
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Fitch Ratings, Inc.
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Media Relations, New York
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