OREANDA-NEWS. Fitch Ratings has assigned Signum Finance II plc's EUR90.5m Series 2015-1 credit-linked notes (CLN) due 2037 (ISIN XS1235186084) a 'BBB-sf' rating with Stable Outlook.

KEY RATING DRIVERS
The rating addresses the repayment of the principal on the notes according to the terms and conditions of the documentation. The rating reflects the credit quality of two risk-presenting entities as well as the issuer's legal and financial structure. The two risk-presenting entities are Goldman Sachs International (GSI; A/Positive/F1) and Italy (BBB+/Stable/F2).

At closing, the proceeds from the notes' issuance were used to purchase a 4.0% coupon Italian government bond (ISIN IT0003934657) traded in the secondary market, and to enter into an asset swap with GSI. The swap counterparty will rank senior to the noteholders in all circumstances. The issuer will pay to the swap counterparty all interest and principal received on the Italian government bonds and the swap counterparty will pay the principal amount due to the noteholders at redemption.

The swap counterparty will make a fixed 4.8% coupon payment to the investors from the issue date to, but excluding, the 2021 payment date. After this date, the investors will receive a leveraged variable coupon, 2.405 times the 30-year EUR swap rate. However should the 30-year EUR swap rate be higher than 5.0%, or the 30-year EUR swap rate less the two-year EUR swap rate be less than 0.25%, the coupon would drop to 0%. The volatility of the note coupon is not addressed by the rating. Provided that no credit events (including default or restructuring) have been declared on the Italian government bond, the note coupon will be paid by GSI.

The noteholders have a put option that they can exercise at any point until the notes' maturity date. If the put option is exercised, the noteholders will receive the proceeds from the sale of the Italian government bond less all expenses plus swap termination payments payable to the issuer (or less swap termination payments if payable by the issuer).

Fitch notes that the Italian government cannot prepay its bonds via a call option which would trigger a mandatory redemption event. The only way the government can prepay its bonds is by buying the bonds back in the open market.

The notes are issued by Signum Finance II Plc, a repackaging note programme arranged by Goldman Sachs International with limited liability and incorporated under Irish law. Non-petition language included in the master programme warrants that no party to any series will be able to petition for the winding-up of the issuer as a consequence of the default of any particular series. In addition, limited recourse clauses in the programme restrict the noteholder of a given series to only have recourse to the collateral assigned to this series.

RATING SENSITIVITIES
Fitch monitors the performance of the underlying risk-presenting entities and adjusts the rating of the transaction accordingly. Fitch tested the impact of a one-notch downgrade of the weakest entity (Italy) and this would lead to a downgrade of the notes by one notch.

DUE DILIGENCE USAGE
No third party due diligence was provided or reviewed in relation to this rating action.

DATA ADEQUACY
The underlying asset has a rating from Fitch. Fitch has relied on the practices of the relevant Fitch groups to assess the asset information.

Overall Fitch's assessment of the asset information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable.