Fitch Downgrades Emblem Finance Company No. 2; Outlook Negative

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has downgraded Emblem Finance Company No. 2 (Emblem Finance) as follows:

--CLP5,082,000,000 credit-linked notes to 'BB-sf' from 'BBsf'; Outlook Negative.

KEY RATING DRIVERS

The rating action follows Fitch's downgrade of the reference entity, Votorantim Participacoes S.A. (VPAR), to 'BBB-' from 'BBB'. Fitch monitors the performance of the underlying risk-presenting entities and adjusts the rating accordingly through application of its credit-linked note (CLN) criteria, 'Global Rating Criteria for Single- and Multi-Name Credit-Linked Notes', dated March 8, 2016.

The rating considers the credit quality of VPAR's current Issuer Default Rating (IDR) ('BBB-'/Negative Outlook) as the reference entity, JPMorgan Chase & Co.'s IDR ('A+'/Stable Outlook) as the swap counterparty, and HSBC Holdings Plc's subordinated notes rating ('A+'/Stable Outlook) as the qualified investment. The Rating Outlook reflects the Outlook on the main risk driver, VPAR, which is the lowest-rated risk-presenting entity.

RATING SENSITIVITIES

The rating remains sensitive to rating migration of each risk-presenting entity. A downgrade of VPAR would likely result in a downgrade to the notes.

Emblem No. 2 is a single-name CLN transaction designed to provide credit protection on VPAR with a reference amount of CLP5,082,000,000 (USD10 million). This protection is arranged through a credit default swap (CDS) between the issuer and the swap counterparty, JPMorgan Chase & Co. Proceeds from the issuance of the notes were used to purchase USD10 million HSBC Holdings Plc subordinated notes as a collateral asset for the CDS. The notes are rated to the payment of interest and principal per the transaction documents. All payments are made in USD amounts adjusted according to both the value of the Undidad de Fomento (UF) and the CLP/USD exchange rate as outlined in the transaction documents.

DUE DILIGENCE USAGE

No third party due diligence was provided or reviewed in relation to this rating action.

Additional information is available at www.fitchratings.com.

Applicable Criteria

Counterparty Criteria for Structured Finance and Covered Bonds (pub. 14 May 2014)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=744158

Global Rating Criteria for Single- and Multi-Name Credit-Linked Notes (pub. 08 Mar 2016)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=878513

Global Structured Finance Rating Criteria (pub. 06 Jul 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=867952

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1002838

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1002838

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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View source version on businesswire.com: http://www.businesswire.com/news/home/20160419006767/en/

Fitch Ratings
Primary Analyst
Shashi Srikantan
Director
+1-212-908-0393
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Committee Chairperson
Kevin Corrigan
Senior Director
+1-212-908-0156
or
Media Relations:
Sandro Scenga, New York, +1 212-908-0278
Email: [email protected]

Source: Fitch Ratings

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