Charge-offs are emerging in a couple of asset-backed securities, sufficient to see credit ratings agencies downgrade the rating on senior debt given that the subordinated tranches no longer provide as much credit support as they were assumed to do at the time the bonds were sold to investors. Fitch Ratings last week lowered the rating on the Class D tranche of the Seiza Augustus Series 2007-1 notes, to 'BB+' from 'BBB', and assigned a negative outlook. Fitch also changed the outlook on the Class C tranche to negative. The ratings on the Class A, B and C tranches were affirmed at 'AAA', 'AA' and 'A' respectively, with the outlook being stable on the former two. The Seiza Augustus Series 2007-1 sold $404 million of notes in April 2007, backed by residential mortgages (75 per cent) and commercial mortgages (25 per cent). There was no lenders' mortgage insurance cover. Outstandings have since paid down to $244 million. Fitch's action follows significant charge-offs to the unrated Class G tranche, reducing the credit support provided by that tranche to $6.5 million from the original balance of $10.3 million. Moreover, there is a high level of arrears being experienced, with arrears of between 30 days and 90 days running at 3.2 per cent of outstandings and arrears of more than 90 days at 7.7 per cent. The arrears are expected to result in further losses over the next few months. Fitch is assuming a 30 per cent loss on defaulted mortgages. Fitch also lowered the ratings on four classes of Mobius NCM-04 notes and left all classes of notes on Rating Watch Negative for similar reasons. Significant charge-offs to the unrated Class G tranche have reduced credit support from the tranche to $118,000 from an original $4.1 million. In addition, mortgage arrears past 90 days total $47 million or 22 per cent of the outstanding portfolio. Loss given default has been assumed at 25 per cent in this case. The affected tranches are: Class C downgraded to 'A-' from 'A'; Class D downgraded to 'CCC' from 'BBB'; Class E downgraded to 'C' from 'B'; and Class F downgraded to 'C' from 'CC'. The notes are supported by non-conforming mortgages which have paid down to $189 million from an original amount of $450 million, at issue in November 2006. The Rating Watch Negative for credit ratings assigned to the Class A1 to D tranches will be resolved upon the appointment of a new master servicer and manager to the trust. The Class E and F tranches will remain on Rating Watch Negative while the charge-offs that are expected to be realised over forthcoming months are monitored. Standard & Poor's lowered the rating assigned to $535 million of medium term notes issued by Allco Max Securities and Mortgage Trust to 'AA-' from 'AAA' and left the ratings on CreditWatch Negative. While the rating action reflects difficulties in managing the transaction in the current credit environment, deteriorating credit quality