The proposed remedies include explicit guarantees or executing a credit support annex. Fitch reviewed standard form documents relative to each proposed remedy and checked that the form documents were applied to the affected transactions. The following is a description of the proposed remedies within the context of Fitch's current counterparty criteria.
Solution 1: Execution of a Credit Support Annex:
In the transactions listed below, the swap counterparty will implement a credit support annex in order to be in a position to collateralise its obligations under derivative agreements with the respective securitisation transactions. In view of the swap counterparty's current rating, Fitch's counterparty criteria does not expect collateral be posted, therefore, Fitch's current ratings will not be affected by the implementation of the credit support annex.
According to its criteria, Fitch expects that remedial action (including the posting of collateral) to be taken in the event the swap counterparty (or guarantor) is downgraded below 'A' or 'F1' by Fitch. The provisions of the credit support annex are consistent with Fitch's criteria, however, Fitch notes that the rating triggers are defined in the existing swap schedules which have not been reviewed as part of this exercise. The materiality of any discrepancies between Fitch's criteria and the documented rating triggers will be reviewed in the event of a Fitch counterparty downgrade.
Real Estate Capital (Foundation) Ltd.
Solution 2: Procurement of a Guarantee from Merrill Lynch Derivative Products AG (MLDP):
In the three transactions listed below, the various swap counterparties will procure a guarantee from MLDP, which is not rated by Fitch, in relation to their obligations under derivative agreements with the securitisation transaction. Although MLDP is not rated, the agency notes that the underlying counterparty arrangements (i.e. excluding the MLDP guarantee) are currently consistent with its counterparty criteria, given the swap counterparty ratings, and that Fitch's current ratings will not be affected by the implementation of the guarantee. Fitch will continue to monitor the ratings of the swap counterparty going forward, as opposed to those of MLDP. Fitch expects additional remedial action will be taken in the event the swap counterparty is downgraded below 'A' or 'F1' by Fitch.
ALESCO Preferred Funding III, Ltd.
ALESCO Preferred Funding V, Ltd
Nationwide Covered Bonds LLP
Additionally, an amendment to the derivative agreements on the Nationwide Covered Bonds LLP transaction was required to allow for the guarantee. Fitch has reviewed the draft document and concludes that such amendment will not negatively affect the ratings of the transaction.