Dear Investors,
On the 21th of June 2011, Allied Irish Banks Plc announced a Failure To Pay Credit Event. On the 30th of June 2011, the ISDA auction gave the following recovery rates :
ISDA Recovery Rate
Allied Irish Bks Plc (Senior)
70.125%
Allied Irish Bks Plc (Subordinated)
10.375%
As the portfolio underlying your transaction was referencing to this issuer, BNP Paribas IP made a total removal at the time of the ISDA Auction . Finally, the final recovery rate has been 10.375% (executed on 30th of June 2011). In order to protect the principal and coupon, the loss was assigned to Class A only. By the same time, we were constrainsted by the structuring bank to replace Penn National Gaming Inc which has become completely illiquid. In order to minimize the negative impact, we have chosen to replace it by Clear Channel Communications Inc, which improved significantly its short term liquidity profile. As result, the impact was -117,73bps on the subordination of the Class A.
The subordination of the Class B didn’t change.
The exposure of Allied Irish Bank Plc on Memling CDO is 0.69%. After this Credit Event, the final current subordinations are :
Before Credit Event
After Credit Event
Class A
2.17%
0.99%
Class B
0.26%
0.26%
As a result, BNP Paribas IP does not expect a reduction in principal nor coupon due to this trade.
We believe that the environment will remain challenging for the weakest European countries and banks in the near term. We can not rule out a risk of contamination from Greece & Ireland to the periphery countries in Europe. We continue to implement a pro-active monitoring and portfolio re-positioning strategy.
06 July 2011