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13 Dec 2010
New York, December 13, 2010 -- Moody's Investors Service has taken rating actions on two series
of notes issued by 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.
Complete rating actions are as follows:
Issuer: Hedged Mutual Fund Fee Trust 2005-1
Ser. 2005-1 Placed Under Review for Possible Upgrade;
previously on August 20, 2009 Downgraded to Baa1 (sf)
Issuer: Hedged Mutual Fund Fee Trust 2005-2
Ser. 2005-2 Downgraded to Ca (sf); previously on August
20, 2009 Downgraded to Caa2 (sf)
The rating actions are based on a review of cash flow modeling results.
Volatility in the market values of most stocks and bonds in major financial
markets this year affected 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 changes in market values have affected the fees expected to be generated
by those funds. These are seasoned deal which no longer benefit
from hedges in the form of put options on selected equity indices,
that have expired.
Series 2005-1, which is placed on review for possible upgrade,
was previously downgraded to Baa1 from A3 on August 20, 2009 due
to the sharp decline in market values of most stocks and bonds in major
financial markets in latter 2008. Since then, this deal has
recovered well and periodic modeling results in 2010 have consistently
shown strength in excess of the current rating. The transaction
is steadily paying down and none of the underlying assets which remain
in the pool will autoconvert (become ineligible to produce fee income)
for roughly one or more years. The legal final of April 2013 suggests
there is considerable time available for repayment.
Series 2005-2, which is being downgraded, originally
consisted of assets which included assets subordinate to Series 2003-3.
These subordinated assets were more at risk for market volatility.
Although Series 2003-3 has paid off and these assets are now providing
cash flow to Series 2005-2, they did not have sufficient
remaining life to recover from the 2008/2009 market downturn. The
rated ABS is currently paying down steadily but due to the age of the
assets, cash flow will attenuate to zero over the course of 2011.
As such, the rated ABS will likely experience a substantial write-off
at legal final in October 2011.
Both of the transactions with rating actions listed above are wrapped
by a financial guarantor (FGIC). 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.
The financial guarantor, FGIC, does not carry a current Moody's
rating. As part of evaluating the current rating for the security,
Moody's Investors Service 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 this transaction was Moody's
Approach to Rating Mutual Fund Fee Securitizations, published April
Moody's Investors Service did receive and take into account a third
party due diligence report on the underlying assets related to the monitoring
of this transaction in the past six months.
Information source(s) used to prepare the credit rating is/are the following:
parties involved in the ratings, public information and confidential
and proprietary Moody's Investors Service's information.
Moody's Investors Service considers the quality of information available
on the transaction satisfactory for the purposes of maintaining a credit
For more information please see www.moodys.com.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service
Structured Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's takes rating actions on Citibank-sponsored mutual fund fee deals
250 Greenwich Street
New York, NY 10007
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