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Vetra Finance Corp (50FI)


Thursday 06 September, 2007

Vetra Finance Corp

Portfolio Commentary

Vetra Finance Corporation
06 September 2007


August 2007,  Portfolio Commentary for Vetra

In this period of unprecedented volatility in the ABCP market, we thought it
appropriate to provide an expanded commentary including a reminder of the
mechanics of Vetra's structural protection mechanisms.


The credit quality of the portfolio remains very strong, with no downgraded
structured finance assets in the portfolio. There is no exposure to subprime or
to CDO's of ABS in Vetra's portfolio.

All of the exposures in the US RMBS bucket have credit enhancement in excess of
the minimal threshold for AAA /Aaa. There are some deals which are AAA /Aaa
rated with an additional wrap but the majority are super senior tranches (i.e.
the tranche subordinate to Vetra's exposure is also AAA / Aaa rated).

In terms of other potential headline sectors, we highlight that all US CMBS
exposure is super senior. Vetra has no exposure to CPDOs, levered super seniors
or single tranche synthetic CDOs. Indeed, it should be apparent that in the
recent tight credit spread market we have focused on higher quality assets in
the belief that we were not being appropriately rewarded for moving down the
credit curve.

In response to a number of investor queries, the table below shows the top 10
exposures in Vetra:

Guarantor                                                                      % of Total Exposures

Amstel SCO 2006-1 (ABN AMRO super senior bank balance sheet CLO)                          3.04
Arran RM 3 (Royal Bank of Scotland UK Prime RMBS)                                         3.04
Dbalt 07-OA3 (Deutsche Bank super senior US RMBS)                                         3.00
Dbalt 07-OA4 (Deutsche Bank super senior US RMBS)                                         2.97
Mermaid 2007-1 (Danske Bank bank balance sheet CLO)                                       2.37
Hermes XII (SNS Dutch Prime RMBS)                                                         2.33
Fosse Master Issuer 06-1 (Alliance and Leicester UK Prime RMBS)                           2.21
Windmere 9 (Lehman super senior German Multi Family CMBS)                                 2.19
C Stone Titan 07-1 (CS super senior European CMBS)                                        2.12
Madison Park 4 (CS super senior CLO)                                                      2.07
Total                                                                                    25.34

The top 10 exposures include a geographically diverse group of Guarantors. It
should be noted that above exposures exclude short-term deposits (i.e. less than
1 month) placed with A-1+/P-1 counterparties for cash management purposes.


We note that although leverage is reported as 15.8 times on page one, this
figure includes short dated cash.  When these exposures are excluded, Vetra's
amended portfolio leverage is only 12.7 times.

SIV Structure

In light of some recent misguided market commentaries on SIVs we thought it
would be useful to remind debt investors of the key structural protection
features that an SIV provides..


SIVs, unlike some other structures, have substantial amounts of capital that is
subordinated to holders of the Aaa/AAA A-1+/P-1 rated senior debt.  Following
the recent deterioration in credit market conditions, the Net Asset Value (NAV)
of Vetra's capital at the end of August was 82%.  It is worth highlighting that
a further market deterioration of some 4 times the move that we have already
seen would be required for senior debt investors to realise a loss.

Defeasance Process

Defeasance involves the orderly sale of the portfolio to repay senior debt as it
falls due.  The debt profile of Vetra currently has an average life of 3.2
months with material amounts of debt outstanding for more than twice that period
of time.  Should Defeasance be triggered it would involve the orderly sale of
the portfolio over a period in excess of 6 months as opposed to an immediate
fire sale as some press speculation seems to suggest.

High Quality portfolio

In the recent past, the tight credit spread environment drove us to reduce risk
by pursuing the following strategies in return for a minimal give up in yield:

  • Protecting the more volatile sectors (USRMBS, CMBS and arbitrage CDOs)
    well beyond the rating agency's requirements for AAA
  • Avoiding what we perceived as the unduly risky areas of sub prime and CDOs
    of ABS

This strategy has led to a portfolio that remains untainted in this market
environment and has no downgraded structured finance assets and no assets on our
internal credit watch lists.

Independent Revaluation

The valuation of the portfolio is conducted by our Independent Control unit,
which has a separate reporting line to Finance and Operations within Citigroup,
and all valuations must come from third parties.

Impact of the current market

The dislocation we are seeing in the ABCP markets is completely unprecedented
and predictably we have received a number of questions from investors. We
thought it would be useful to comment on a number of topics that we have
recently discussed.

General market liquidity was disrupted in August, but in spite of all the
challenges experienced during the month Vetra issued US$ 476 million CP with a
weighted average tenor of 83 days in the CP markets. Furthermore, in the
interests of prudence, Vetra sold about US$ 300 million of assets.

We recognise that the SIV sector is currently suffering from negative headlines.
This is a source of considerable frustration for us, as much of the commentary
is ill informed and fails to distinguish between different types of vehicle. We
believe that the SIV model remains sound and hope that this month's report
provides a clear explanation of the strengths of the structure.

If you have any questions on the commentary above or any other issues please
contact Richard Burrows. Tel: +44 (0)20 7508 8514.


This report is prepared by Citibank International plc in its capacity as
Investment and Group Funding Manager ('Citibank') of Vetra Finance Corporation
('Vetra') and Vetra Finance Inc (together the 'Companies'). Citibank is
authorised and regulated by the Financial Services Authority. This report should
not be reproduced, released or distributed without the Companies' or Citibank's
permission (other than by the dealers who may distribute the report, pursuant to
their obligations under the relevant agreement appointing them as a dealer for
the senior debt programmes of the Companies).

This report is for information only and does not constitute an offer or
invitation by or on behalf of the Companies to subscribe for or purchase any
securities issued or co-issued or to be issued or to be co-issued by the
Companies or to make investments in or to enter into transactions with the
Companies. Offers and sales of securities, investments in or transactions with
the Companies may only be made pursuant to the relevant Information Memorandum
or Private Placement Memorandum or documentation prepared by Vetra or the
Companies (as relevant) for specific use in connection with particular
securities offerings, investments or transactions.

The information contained in this report in part represents the opinion of
Citibank and Citibank makes no representations or warranties and accepts no
liability whether in contract, tort or otherwise for (1) the fact that the
information is not full and complete, (2) the accuracy of any opinion, (3) the
basis on which any comparison has been drawn or the facts selected to make such
comparison and (4) the assumptions underlying the opinions. Any investor or
potential investor who is considering a decision in relation to the Companies
should obtain independent advice and consult or review all relevant factors with
(among others) their own financial, legal and tax advisors. This analysis does
not contain and will not constitute representations of the Companies or

Please note that information relating to valuations (including net asset values)
represents Citibank's current reasonable opinion and is based on unaudited
figures which have been derived from multiple external sources and have not been
subject to specific due diligence. Accordingly, whilst Citibank has made all
reasonable efforts to check for accuracy, no reliance should be placed on the
information, which is an opinion based on a complex process. No opinion of this
nature can be, and this information does not purport to be, full, complete,
comprehensive or to contain all relevant information.

Valuation information should not be relied upon as an indication of the past,
current or future value of any investment in the Companies. Additionally, past
and current performance (including valuation information) is not necessarily
indicative of future results.

Any opinion is provided as at the date specified herein and is subject to change
due to circumstances beyond Citibank's control.

The information contained in this report (whether it be a PDF or Excel document)
is susceptible to alteration, forgery and distortion. If you use or rely on
information contained in this report, you accept these risks and neither
Citibank nor the Companies accept any liability for any claims resulting from
such use or reliance. Nothing in this Important Notice excludes any liability
which Citibank or the Companies are not permitted to exclude by applicable law.

The securities issued under the euro senior debt programmes have not been
registered under the Securities Act of 1933, as amended (the '1933 Act'), and
sales or other transfers thereof may not be made within the United States or to
'US Persons' as defined in Regulation S under the 1933 Act and in the Internal
Revenue Code of 1986, as amended.

The securities issued under the US senior debt programmes have not been
registered under the 1933 Act, and sales or other transfers thereof may only be
to persons that are both 'qualified purchasers' within the meaning of the
Investment Company Act of 1940, as amended and 'qualified institutional buyers'
within the meaning of Rule 144A under the 1933 Act, in transactions that meet
the requirements of Rule 144A.

In addition the Companies notify all existing holders ('Holders') of the
medium-term notes co-issued pursuant to the US MTN Programme of the Companies
('USMTNs') and commercial paper co-issued pursuant to the US Commercial Paper
Programme of the Companies ('USCP') that: (1) each Holder is required to be a
'qualified institutional buyer' as defined in Rule 144A of the 1933 Act and a
'qualified purchaser' as defined in Section 2(a)(51)(A) of the Investment
Company Act of 1940 (a 'QIB/QP') that can make the following representations
with respect to itself: (a) the Holder is not a broker-dealer which owns and
invests on a discretionary basis less than U.S.$25 million in securities of
unaffiliated issuers and is not a participant-directed employee plan, such as a
401(k) plan, (b) the Holder is not an entity in which the equity owners may
designate the particular investments to be made, or the allocation thereof,
unless such person is a QIB/QP, (c) the Holder is not formed for the purpose of
purchasing the USMTNs or USCP and is acting for its own account or the account
of an investor meeting these requirements, holding at least U.S.$500,000 of
USMTNs or U.S.$200,000 of USCP in each account and (d) the Holder will provide
notice of the transfer restrictions to any subsequent transferees, (2) the
USMTNs and USCP can only be transferred to another QIB/QP that can make the same
representations and (3) the Companies have the right to force any holder who is
not a QIB/QP to sell or redeem the USMTNs or USCP co-issued by the Companies.

It is intended that the report should be distributed to existing investors, and
dealers on, the CP and MTN programmes. Should you have any questions please call
Richard Burrows, Head of Funding (Tel: +44 20 7508 8514) or email
[email protected]

Note: Balances may not sum due to rounding differences

Note: Data in this report represents the position at the start of the report

Note: Citibank International plc is authorised and regulated by the Financial
Services Authority

This report is confidential and may also be privileged. If you are not the
intended recipient, please notify Kristofer Eklundh on 020 7500 1534 or Kevin
Mandy on 020 7500 0858. You should not copy or use it for any other purpose, nor
disclose its contents to any other person.

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            The company news service from the London Stock Exchange         UUUMGBUPMUBQ                                                                                                                                                                                                                                                   

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