OREANDA-NEWS. March 23, 2015. Fitch Ratings has affirmed FORCE TWO Limited Partnership's notes as follows:

EUR9.8m Class D notes (ISIN: XS0299044056): affirmed at 'CCsf'; Recovery estimate (RE) revised to 70% from 50%
EUR9.7m Class E notes (ISIN: XS0299045020): affirmed at 'Csf'; RE: 0%

The transaction is a cash securitisation of profit participation agreements of German SMEs. The portfolio companies were selected by equiNotes Management GmbH, a joint venture of IKB Private Equity GmbH (a subsidiary of IKB Deutsche Industriebank AG) and Deutsche Bank AG, acting as advisor for the issuer.

KEY RATING DRIVERS
The affirmation of the class D notes at 'CCsf' reflects Fitch's view that default is probable. The affirmation of the class E notes at 'Csf' reflects Fitch's view that default is inevitable.

FORCE TWO reached scheduled maturity in January 2014. The companies' subordinated debt instruments securitised in the pool are bullet loans. They all became due on two dates, shortly before scheduled maturity. The junior class D and class E notes were not repaid in full.

Beyond the scheduled maturity date, the first source for repayments is tax reclaims by the issuer from the German tax authorities. This is because withholding tax on interest receipts from the portfolio companies can be reclaimed. Fitch has identified a possible tax refund of EUR6.8m for tax paid in 2012, 2013 and 2014. Given that the possible refunds have been delayed more than observed in the past, the agency has not taken these into account when forming its rating decisions.

The second source of repayments is recoveries from four companies still under management. As of the last investor report dated 24 January 2015, they had an aggregate outstanding portfolio amount of EUR8.5m. Taking into account negotiated amendment agreements as well as on-going partial repayments by some obligors, Fitch expects belated payments on the outstanding notes from these recoveries still to be effected.

Fitch has affirmed the class D notes due to the uncertainty of the timing and amount of the payments to materialise. Given the agency's revised expectations on debtor repayments the RE for the class D notes was raised to 70% from 50%. The RE on the class E notes is unchanged at 0%. REs are forward-looking recovery estimates, taking into account Fitch's expectations for principal repayments on a distressed structured finance security.

RATING SENSITIVITIES
After scheduled maturity, the transaction is primarily sensitive to whether or not 2012, 2013 and 2014 withholding tax on interest payments under the profit participation agreements will be refunded by the tax authorities as it has been done in the past. The transaction is also sensitive to recoveries from agreements in place that supervise belated payments (e.g. via standstill agreements, prolongations or enforcement of claims by the insolvency administrator). The risks are reflected in the ratings of the notes.