Speculation that the Turkish sovereign and local downgrades would affect ABS deals came true last week, when Fitch announced it would lower ratings on four of the structures, including Ottoman Bank's TPR plc, which fell to a BBB-' from a BBB'.

Contrary to past assumptions that the originator, Ottoman Bank, would maintain its strength in face of economic deterioration, Fitch now estimates an increase in the operating risks of the bank, with the sovereign downgrades in the backdrop. Both the country's long-term sovereign and long-term local ratings were lowered one notch to B' and B-' respectively. The agency said in a report that delineates the downgrade that those ratings will maintain a negative outlook, which can continue to adversely affect the banking sector.

Fitch's decision to take action on the deals is an attempt to bring the bank and sovereign rating more in line with the transaction rating, which had widened to a six notch gap on the sovereign level and a seven notch gap on the local level.

"What we have done is bring the rating more in line with the going concern assessment, and, in the past six months since the first sovereign [and local] downgrade, that has changed by one notch to BBB-'," explained an analyst at Fitch.

The Ottoman Bank downgrade also affected Garanti Receivables Trust, which was downgraded to BBB' from BBB+', Ottoman IFC Trust 1998 I&II to B+' and Garanti IFC B Loan Certificates (1997) to B+' from BB'. Ottoman Bank is a subsidiary of Garanti Bank.

While the IFC loan certificates, the Ottoman IFC trust, and the Garanti IFC Loan certificates benefit from a combination of offshore liquidity reserve and protection from IFC's preferred creditor status, they still depend on the bank meeting local obligations. "They work like a straight corporate with IMC involvement but there are no guarantees in place," explained the analyst. "At the moment, though, we are comfortable with ratings on all Turkish deals and will re-evaluate them at a later date."

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