Standard & Poor's downgraded 14 classes of auto lease ABS issued by Mitsubishi Motor Credit of America last week, due to greater-than-expected defaults of the captive lender's zero-down, zero-interest and zero-payments for 15 months subvention loan strategy. The balloon payment loans had long given investors concerns, for which Mitsubishi had paid up with significant spread premiums in the primary market.

S&P's downgrades, however, of as much as four notches on some senior bonds, were more severe than had been anticipated and took a little longer than had been expected, after S&P placed the tranches on review for a downgrade in late March. For example, the outstanding senior tranches of the 2001-3, and 2002-2 series were cut to A+' from AAA' and 2001-4 and 2002-1 series were cut two notches to AA' from AAA'. Subordinate classes were also downgraded by one to three notches, the most severe being the 2002-2 series, which saw the B class cut to BBB-' from A' and C class cut to BB' from BBB'.

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