OREANDA-NEWS. December 23, 2015. Fitch Ratings has downgraded Signum Finance II plc's EUR90.5m Series 2015-1 CLN (ISIN XS1235186084) to 'BB+sf' from 'BBB-sf' with Stable Outlook.

KEY RATING DRIVERS
The downgrade reflects the addition of a third risk-presenting entity, Standard Chartered PLC (A+/Negative/F1) to the transaction following a restructuring on 18 December 2015. The restructuring also extended the maturity date and amended the initial fixed coupon. The three risk-presenting entities are now Goldman Sachs International (GSI, A/Positive/F1), Italy (BBB+/Stable/F2), and Standard Chartered PLC (A+/Negative/F1).

At closing in June 2015, the proceeds from the notes' issuance were used to purchase a 4.0% coupon Italian government bond (ISIN IT0003934657) traded in the secondary market and to enter into an asset swap with GSI. Following the restructuring on 18 December 2015, the issuer sold a portion of the Italian government bonds and with the proceeds purchased 4.375% coupon Standard Chartered PLC senior unsecured bonds (ISIN XS0876756452), adding a third risk-presenting entity to the transaction.

The swap counterparty, GSI, ranks senior to the noteholders in all circumstances. The issuer will pay to the swap counterparty all interest and principal received on the Italian government bonds and the Standard Chartered PLC bond, and in exchange the swap counterparty will pay the principal amount due to the noteholders at redemption.

The swap counterparty will make a fixed 5.22% coupon payment to the issuer which in turn will pay the investors from the issue date to, but excluding, the 2021 payment date. After this date, the investors will receive a leveraged variable coupon, 2.405 times the 30-year EUR swap curve. Should the 30-year EUR swap curve be higher than 5.0%, or the 30-year EUR swap curve less the two-year EUR swap curve be less than 0.25%, the coupon would drop to 0%. The volatility of the note coupon is not addressed by the rating. Provided that no credit events (including default or restructuring) have been declared on the Italian bond, the note coupon will be paid by the swap counterparty, GSI.

RATING SENSITIVITIES
Fitch monitors the performance of the underlying risk-presenting entities and adjusts the rating of the transaction accordingly. Fitch tested the impact of a one-notch downgrade for each of the risk-presenting entities.

A downgrade of Italy to 'BBB' would lead to a downgrade of the notes by one notch. A downgrade of GSI to 'A-' or a downgrade of Standard Chartered PLC to 'A' would not impact the rating of the notes. If these three events occur, the notes will be downgraded by one notch.

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

DATA ADEQUACY
The underlying asset has a rating from Fitch. Fitch has relied on the practices of the relevant Fitch groups to assess the asset information.

Overall Fitch's assessment of the asset information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable.