Fitch Assigns Negative Watch to Class A and B of Kazakh MBS 2007-1 B.V.
Fitch Ratings-London/Moscow-23 February 2009: Fitch Ratings has today assigned a Rating Watch Negative (RWN) to the class A and B notes, rated 'BBB+' and 'BBB' respectively, issued by Kazakh Mortgage Backed Securities 2007-I B.V. (Kazakh MBS). The class C notes were affirmed at 'BB' with a Stable Outlook. The action follows the downgrade by Fitch of BTA Bank to 'B+'/RWN from 'BB'/Outlook Negative as well as the assignment of a Rating Watch Negative to the Republic of Kazakhstan's Long-term local currency Issuer Default Rating (IDR) of 'BBB' by Fitch on 19 February 2009. Kazakh MBS is a securitisation of mortgage loans originated by BTA Ipoteka, a wholly-owned subsidiary of BTA Bank. In line with Fitch's criteria, the rating and Outlook of the senior notes are linked to the originator's rating and Outlook. Based on the current legal and regulatory environment in Kazakhstan, Fitch believes that the maximum achievable distance between the rating of the senior notes and the rating of the originator is equal to six notches. As such, further downgrades of the originator would trigger further negative action on the rating of the class A notes. Fitch highlights that a downgrade of Kazakhstan would result in higher loss severity assumptions for the notes due to reattachment of the default model stresses to a lower rating scenario. Fitch has analysed the effect of a potential single-notch downgrade of Kazakhstan on the Kazakh MBS' notes. The results of the analysis showed that class A and B of notes will not be able to withstand the higher stresses implied by a single-notch downgrade of the sovereign. As a result of this, Fitch has assigned a Rating Watch Negative to the senior and mezzanine notes of Kazakh MBS. The transaction has amortized rapidly by approximately 60% of original balance due to high prepayment rates and the initiative of BTA Ipoteka, to systematically repurchase loans from the transaction. The annualized prepayment and loan repurchase rates have been each around 15% of the outstanding collateral balance since closing. Defaults borne by the transaction to date have been negligible due to the fact to the fact that the originator has repurchased most of the delinquent loans. In order to follow the performance of the closing portfolio, Fitch performs regular analyses of the loan-by-loan performance data provided by the originator and identifies the number of "distressed" loans. According to Fitch estimates, cumulative 60+ days delinquencies including repurchased and prepaid loans reached 5.6% of the closing portfolio in January 2009, up from 4.5% as of September 2008. For further information, please see the commentary entitled "Legal Uncertainty in Emerging Market Transactions" released on 27 February 2007 and "Criteria for Existing Asset Securitization in Emerging Markets - Sovereign Constraints" released on 17 March 2008. Both reports are available on the agency's public website, www.fitchratings.com.