Fitch Downgrades Emblem Finance Company No. 2 Limited

CHICAGO--()--Fitch Ratings has downgraded the notes issued by Emblem Finance Company No. 2 Limited (Emblem No.2) as follows:

--CLP 5,082,000,000 credit-linked notes to 'BBsf' from 'BB+sf'; Outlook Stable.

The downgrade follows Fitch's downgrade of the eligible investments to the transaction, HSBC Holdings Plc subordinated notes (CUSIP US404280AF65, rated 'A+') on Dec. 7, 2012. Fitch monitors the performance of the underlying risk-presenting entities and adjusts the rating accordingly through application of its current credit-linked note (CLN) criteria, 'Global Rating Criteria for Single- and Multi-Name Credit-Linked Notes' dated Feb. 22, 2012.

The rating considers the credit quality of the HSBC Holdings Plc subordinated notes, JPMorgan Chase & Co. as swap counterparty (rated 'A+', Outlook Stable), and Votorantim Participacoes S.A.'s (VPAR) current Issuer Default Rating (IDR) of 'BBB' with a Stable Outlook. The Rating Outlook reflects the Outlook on the main risk driver, VPAR, which is the lowest rated risk-presenting entity.

Emblem No. 2 is a single name CLN transaction designed to provide credit protection on the VPAR with a reference amount of CLP5,082,000,000 (USD10 million). This protection is arranged through a credit default swap (CDS) between the issuer and the swap counterparty, JPMorgan Chase & Co. Proceeds from the issuance of the notes were used to purchase USD10 million HSBC Holdings Plc subordinated notes as a collateral asset for the CDS. The notes are rated to the payment of interest and principal per the transaction documents. All payments are made in USD amounts adjusted according to both the value of the Undidad de Fomento (UF) and the CLP/USD exchange rate as outlined in the transaction documents.

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

The information used to assess this rating was sourced from the originator and the public domain.

Applicable Criteria & Related Research:

--'Global Rating Criteria for Single- and Multi-Name Credit-Linked Notes' (Feb. 22, 2012);

--'Counterparty Criteria for Structured Finance Transactions' (May 30, 2012).

Applicable Criteria and Related Research:

Global Rating Criteria for Single- and Multi-Name Credit-Linked Notes

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=672072

Counterparty Criteria for Structured Finance Transactions

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=678938

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE.

Contacts

Fitch Ratings
Primary Surveillance Analyst
Aaron Hughes, +1-312-368-2074
Director
Fitch, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Committee Chairperson
Derek Miller, +1-312-368-2076
Senior Director
or
Media Relations
Elizabeth Fogerty, +1-212-908-0526 (New York)
elizabeth.fogerty@fitchratings.com