New York, August 20, 2009 -- Moody's Investors Service has taken rating actions on twelve series of
notes issued by various Hedged Mutual Fund Fee Trusts. These transactions
represent securitizations of 12(b)1 fees and contingent deferred sales
charges generated by specified pools of mutual fund shares commonly known
as "B" shares. Citibank, N.A., the sponsor,
has been a major financier of such fees.
The rating actions are based on a review of cash flow modeling results
which indicate increased potential for default frrequency and severity.
The sharp declines in market values of most stocks and bonds in major
financial markets worldwide in latter 2008 caused declines in the cash
flows expected to be received from the mutual fund shares underlying these
transactions. Since changes in the current value of a fund alter
the future stream of 12b1 fees, which are the primary source of
cash flow in these transactions, the declines in market values have
lowered the fees expected to be generated by those funds. Market
improvements in 2009 have not to date reversed the weakness. These
deals also benefit to varying degrees from hedges in the form of put options
on selected equity indices. The hedges in the transactions,
to the extent not expired, have not and are not expected to provide
sufficient offset to market volatility to maintain the prior ratings.
Notes whose ratings are being confirmed in some cases represent older
deals not previously downgraded which benefited from the strong market
performance prior to latter 2008 or newer deals that had previously been
downgraded. The lone transaction being upgraded is also an older
deal which benefited from the prior strong market performance.
Finally, the two transactions downgraded most severely, Series
2005-2 and Series 2007-1, are transactions whose collateral
included subordinated interests in other mutual fund fee trusts.
These subordinated assets were more at risk for market volatility.
All but one of the transactions with rating actions listed below are wrapped
by a financial guarantor. The current ratings on the securities
are consistent with Moody's practice of rating insured securities at the
higher of (1) the guarantor's insurance financial strength rating and
(2) the underlying rating, based on Moody's modified approach to
rating structured finance securities wrapped by financial guarantors.
As part of evaluating the current rating for the security, Moody's
Investors Service also reviewed the underlying rating. The underlying
rating reflects the intrinsic credit quality of the security in the absence
of the guarantee.
The principal methodology used in rating the transaction was "Moody's
Approach to Rating Mutual Fund Fee Securitizations", which can be
found at www.moodys.com in the Credit Policy & Methodologies
directory, in the Ratings Methodologies subdirectory. Other
methodologies and factors that may have been considered in the process
of rating this issue can also be found at www.moodys.com
in the Credit Policy & Methodologies directory.
Complete rating actions are as follows:
Issuer: Hedged Mutual Fund Fee Trust 2004-1
Ser. 2004-1, Confirmed at Aa2; previously on
Dec 30, 2008 Aa2 Placed Under Review for Possible Downgrade
Issuer: Hedged Mutual Fund Fee Trust 2004-2
Ser. 2004-2, Confirmed at Aa2; previously on
Dec 30, 2008 Aa2 Placed Under Review for Possible Downgrade
Underlying Rating: Confirmed at Aa2; previously on Dec 30,
2008 Aa2 Placed Under Review for Possible Downgrade
Issuer: Hedged Mutual Fund Fee Trust 2004-3
Ser. 2004-3, Upgraded to Aa2; previously on Dec
30, 2008 Aa3 Placed Under Review for Possible Downgrade
Underlying Rating: Upgraded to Aa2; previously on Dec 30,
2008 Aa3 Placed Under Review for Possible Downgrade
Issuer: Hedged Mutual Fund Fee Trust 2004-4
Ser. 2004-4, Confirmed at Aa3; previously on
Dec 30, 2008 Aa3 Placed Under Review for Possible Downgrade
Underlying Rating: Confirmed at Aa3; previously on Dec 30,
2008 Aa3 Placed Under Review for Possible Downgrade
Issuer: Hedged Mutual Fund Fee Trust 2005-1
Ser. 2005-1, Downgraded to Baa1; previously on
Dec 30, 2008 Downgraded to A3 and Placed Under Review for Possible
Downgrade
Underlying Rating: Downgraded to Baa1; previously on Dec 30,
2008 Downgraded to A3 and Placed Under Review for Possible Downgrade
Issuer: Hedged Mutual Fund Fee Trust 2005-2
Ser. 2005-2, Downgraded to Caa2; previously on
Dec 30, 2008 Downgraded to Baa3 and Placed Under Review for Possible
Downgrade
Underlying Rating: Downgraded to Caa2; previously on Dec 30,
2008 Downgraded to Baa3 and Placed Under Review for Possible Downgrade
Issuer: Hedged Mutual Fund Fee Trust 2005-3
Series 2005-3, Downgraded to Ba2; previously on Dec
30, 2008 Downgraded to Baa1 and Placed Under Review for Possible
Downgrade
Underlying Rating: Downgraded to Ba2; previously on Dec 30,
2008 Downgraded to Baa1 and Placed Under Review for Possible Downgrade
Issuer: Hedged Mutual Fund Fee Trust 2006-1
Ser. 2006-1, Downgraded to Ba1; previously on
Dec 30, 2008 Downgraded to A3 and Placed Under Review for Possible
Downgrade
Underlying Rating: Downgraded to Ba1; previously on Dec 30,
2008 Downgraded to A3 and Placed Under Review for Possible Downgrade
Issuer: Hedged Mutual Fund Fee Trust 2006-2
Ser. 2006-2, Downgraded to Baa3; previously on
Dec 30, 2008 Downgraded to A3 and Placed Under Review for Possible
Downgrade
Underlying Rating: Downgraded to Baa3; previously on Dec 30,
2008 Downgraded to A3 and Placed Under Review for Possible Downgrade
Issuer: Hedged Mutual Fund Fee Trust 2006-3
Ser. 2006-3, Confirmed at A2; previously on Dec
30, 2008 Downgraded to A2 and Placed Under Review for Possible Downgrade
Underlying Rating: Confirmed at A2; previously on Dec 30,
2008 Downgraded to A2 and Placed Under Review for Possible Downgrade
Issuer: Hedged Mutual Fund Fee Trust 2006-4
Ser. 2006-4, Confirmed at A3; previously on Dec
30, 2008 Downgraded to A3 and Placed Under Review for Possible Downgrade
Underlying Rating: Confirmed at A3; previously on Dec 30,
2008 Downgraded to A3 and Placed Under Review for Possible Downgrade
Issuer: Hedged Mutual Fund Fee Trust 2007-1
Ser. 2007-1, Downgraded to B1; previously on
Dec 30, 2008 Downgraded to Baa1 and Placed Under Review for Possible
Downgrade
Underlying Rating: Downgraded to B1; previously on Dec 30,
2008 Downgraded to Baa1 and Placed Under Review for Possible Downgrade
New York
John Park
Managing Director
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Michael McDermitt
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's takes action on Citibank-sponsored mutual fund fee deals