OREANDA-NEWS. March 21, 2016. Fitch Ratings has downgraded Force Two Limited Partnership's class D notes and has affirmed the class E notes. The agency has simultaneously withdrawn the ratings, as follows:

EUR0.7m class D notes (ISIN: XS0299044056): downgraded to 'Csf' from 'CCsf'; Recovery Estimate revised to 0% from 70%; withdrawn
EUR9.7m class E notes (ISIN: XS0299045020): affirmed at 'Csf'; Recovery Estimate 0%; withdrawn

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
Fitch is withdrawing Force's ratings for commercial reasons as pre-announced on 16 February 2016 (see Fitch Plans to Withdraw Force Two Limited Partnership's Ratings on www.fitchratings.com).

The 'Csf' ratings reflect Fitch's view that default is inevitable for both classes of notes.

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 of repayments was 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 small possible tax refund of EUR0.2m for tax paid in 2014 and 2015. Given that the possible refunds have been delayed in the past, the agency has not taken these into account when forming its rating decisions.

The second source of repayments was recoveries from three companies still under management. As of the last investor report dated 24 January 2016, they had an aggregate outstanding portfolio amount of EUR5.5m. 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 downgraded the class D notes and affirmed the class E notes as the agency does not expect these payments to be available for notes redemption given the seniority of senior fees and interest payments in the priority of payments. Fitch has revised the Recovery Estimate (RE) for the outstanding class D notes to 0% from 70%. 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
Not applicable

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

DATA ADEQUACY
Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pool and the transaction. There were no findings that were material to this analysis. Fitch has not reviewed the results of any third party assessment of the asset portfolio information or conducted a review of origination files as part of its ongoing monitoring.

Fitch did not undertake a review of the information provided about the underlying asset pool ahead of the transaction's initial closing. The subsequent performance of the transaction over the years is consistent with the agency's expectations given the operating environment and Fitch is therefore satisfied that the asset pool information relied upon for its initial rating analysis was adequately reliable.

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

SOURCES OF INFORMATION
The information below was used in the analysis:
- Investor report and servicer report provided by Deutsche Bank on 24 January 2016
- Loan enforcement details provided by Deutsche Bank on 24 January 2016