Fitch Releases New Criteria for Securities-Backed ABCP Programs

Business Wire, Feb 1, 2005

NEW YORK -- Fitch Ratings has today launched a new portfolio default model, called VECTOR CP, to quantify the credit risk of an asset portfolio held by securities-backed asset-backed commercial paper (ABCP) programs. VECTOR CP is fully discussed in Fitch's new criteria report 'Using the Default VECTOR Model to Rate Securities-Backed ABCP.' Fitch will use its new Default VECTOR CP model for all globally rated securities-backed ABCP programs beginning Feb. 1.

VECTOR CP, the centerpiece of Fitch's securities-backed program rating methodology, is a state-of-the-art analytical tool that will be used to evaluate how the portfolio credit quality, asset correlation, and the number of transactions affect the credit performance of a given program's overall asset portfolio. VECTOR CP is based on a Monte Carlo simulation technique that simulates the default behavior of individual assets through each asset's life. VECTOR CP will be used to derive a program's programwide credit enhancement (PWCE) level and/or verify the sufficiency of an existing PWCE level for a given asset portfolio.

Accommodating the unique features of securities-backed ABCP programs, VECTOR CP is a modified version of the original VECTOR model, which is used as an analytical tool for Fitch's global CDO rating methodology. VECTOR CP will be made available to interested conduit administrators and investment managers. Additionally, VECTOR CP may be made available to investors upon request.

One of the new analytical features incorporated into Fitch's new rating approach is correlation between the assets in the underlying portfolio. Though some program investment guidelines have concentration limits based on asset type or industry, there is typically no attempt made to restrict a program's investment activities or adjust the PWCE level based on the overall portfolio correlation level. VECTOR CP also allows users to assess the impact of other portfolio characteristics, including the number of assets and lumpiness of a given asset portfolio.

Fitch's new criteria report, which complements its existing securities-backed criteria, provides a detailed description of how the VECTOR CP inputs are formulated, what modeling assumptions are made, and how model outputs are interpreted. The report is available on the Fitch Ratings web site at 'www.fitchratings.com'.

Fitch will begin discussing the implementation of the new criteria with securities-backed program sponsors. For each program, a transition period may be employed.