Prompted by a sovereign downgrade, Moody's Investors Service has again cut the B-tranche of a transaction issued by Belize's Development Finance Corp. in April 2002. Originally at Ba2', the currently US$3.9 million chunk is now B2'. This follows a downgrade a little over a year ago of the deal known as the Belize Mortgage Co. Artemis Global Finance arranged the transaction.

Fitch Ratings quietly withdrew its rating on the deal over the last few months. An analyst at the agency declined to comment on the matter.

The Moody's action was entirely precipitated by the agency's demotion of Belize to B2' from Ba3', as the sovereign guarantees the tranche. The quality of the asset pool was immaterial to the move, according to Brigitte Posch, senior analyst at Moody's.

Amounting to US$40 million at issuance, the A-tranche has held at A3' due to a surety from Steadfast Insurance Company, a subsidiary of Zurich America Insurance Company. When placed, the Steadfast guaranty was not exactly a full wrap, as it covered US$40 million - the volume of issuance - and therefore did not extend to interest payments early on. With amortization, coverage will soon reach that of a full wrap.

The Belize Mortgage pool is actually a mixed bag, including agricultural and industrial loans, as well as traditional mortgage loans. The wide-ranging collateral creates huge disparities in performance. "One of the biggest loans is to a fleet of buses and you don't have the consistency of a deal [fully] backed by individuals paying their mortgages," said a source familiar with the deal.

Copyright 2004 Thomson Media Inc. All Rights Reserved.

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