Fitch assigns an ‘AAA’ Issuer Default Rating (IDR) to Quadrant Structured Credit Products LLC (Quadrant). The IDR addresses Quadrant’s ability to make timely payments as required to counterparties.
Quadrant is a Credit Derivatives Product Company (CDPC) that sells credit protection through credit default swaps (CDS) on single-name and tranched corporate exposures. Quadrant will be managed by Quadrant Structured Investment Advisers LLC (QSIA), a Delaware LLC. Both Quadrant and QSIA are subsidiaries of Quadrant Structured Products Company, Ltd. (QSP), which is majority owned by Magnetar MQ, Ltd, and minority owned by Lehman Brothers Holdings Inc. and certain members of Quadrant’s management team. Magnetar MQ, Ltd is advised by Magnetar Financial LLC (Magnetar). Magnetar is an alternative asset manager with experience in fixed income, equity, structured and alternative products, and private equity asset classes. As of Dec. 31, 2006, Magnetar had assets under management of approximately $4 billion.
Quadrant will engage in activities permitted by its operating guidelines. The operating guidelines specify, among other things, portfolio guidelines, eligible transactions, eligible counterparties, eligible investments and required capital. A proprietary capital model is used to determine Quadrant’s required capital. Failure of capital tests and certain breaches of the operating guidelines can lead to restrictions in Quadrant’s ability to sell additional credit protection.
Quadrant’s capital model has been calibrated to Fitch’s Default VECTOR model to calculate potential defaults in the reference portfolio, and also includes components for cashflow and interest-rate simulations. The capital model produces portfolio loss distributions and measures the level of payment defaults based on payment flows relative to a level of capital support and rating confidence intervals.
The ratings assigned are based on the credit quality and composition of the reference portfolio and eligible investments, Fitch’s review of the operating guidelines and the proprietary capital model, the terms of the transaction documents, the experience of management, the operational and risk management infrastructure, and the legal terms and structural restrictions of the transaction.