Back around the end of June, early July, Elderslie Finance was placed in receivership by the trustee of the company's debenture holders, Perpetual. At the same time, due to a deficiency of funds in the collection account, there was nearly a default on the coupon payments due under the Elderslie MTN Trust Series 2006-1 asset backed securities issue. This would have been the first ABS default in Australia.In anticipation of a possible default, S&P moved a week earlier to downgrade the ratings on three tranches of the ABS issue to CC and placed the ratings on negative credit watch. However, with the coupon payments met and greater clarity being provided about the on-going cash flow and management of the transaction, the ratings were moved to A for the class A securities; BBB for the class B securities; and CCC for the class C securities; all on credit watch with developing implications.Last week, more than four months later, S&P affirmed the 'A' rating on the Class A notes, lowered the Class B notes to 'BB' from 'BBB' and placed the 'CCC' rating on the Class C notes on CreditWatch with negative implications. Since July the remaining outstanding receivables have reduced to about 20 per cent of the original balance and this has had the effect of increasing the subordination support available to the Class A and B notes. However, the excess spread generated by the receivables has diminished and will continue to do so as the receivables are repaid.Increasingly, losses experienced by the trust are being absorbed by the Class D notes, which will reduce the subordination support available to the higher ranking tranches over time. Moreover, recovery of the funds that were deficient in the collection account appears to still remain in doubt.