Fitch Places $5.4B of REIT TruPS CDOs on Rating Watch Negative

Fitch's rating actions reflect continued deterioration in the credit quality of underlying issuers of trust preferred securities and subordinated debt. In particular, the credit profiles of many homebuilders, mortgage REITs and specialty finance companies continue to decline. Fitch currently maintains a Negative Rating Outlook on the homebuilder, residential and commercial mortgage REIT sectors. The challenges facings these sectors are expected to be even more pronounced with respect to the smaller-sized, shadow-rated entities which typically characterize REIT TruPS CDO portfolios.

Based on public and shadow ratings performed by Fitch, it is estimated that an average of 22.9% of the portfolios underlying the 15 CDOs are currently rated 'CCC+' or below, ranging between 6.6% and 45.8%. Since Fitch's last review of REIT TruPS CDOs in September, six underlying issuers representing a total exposure of $524.5 million have been identified by Fitch as exhibiting heightened credit risk, having either experienced a default or deferral on issued securities, a technical default, or ratings migrating to 'CC' or below, indicating that a default of some kind appears probable. Among these six identified credit risk securities is an underlying homebuilder which filed for bankruptcy protection on Nov. 9, 2007.

REIT TruPS CDOs exhibit varying levels of credit enhancement and other structural protections to rated noteholders. In addition, the magnitude of exposure to troubled issuers varies transaction-to-transaction. While this makes comparisons across transactions difficult, Fitch expects that potential downgrades with respect to classes currently rated 'AAA' and 'AA' will be approximately one to two rating categories, remaining in the investment grade range and reflecting an increased probability of default as opposed to an expectation of a principal loss to such noteholders. Fitch expects potential rating actions with respect to more junior classes to be more pronounced, reflecting an increased expectation of potential principal loss to noteholders as a result of collateral defaults and deterioration. The credit risk to junior classes is likely to be exacerbated by the fact that collateral defaults and deterioration, in addition to reducing the principal balance available to support such notes, often enact cash trapping mechanisms which divert interest payments to senior classes from junior classes.

Fitch has placed the following REIT TruPS CDOs on Rating Watch Negative:

Attentus CDO I, Ltd./LLC (Attentus I)

--$277,979,197 class A-1 'AAA';

--$20,000,000 class A-2 'AAA';

--$65,000,000 class B 'AA';

--$10,000,000 class C-1 'AA-';

--$35,000,000 class C-2A 'A-';

--$30,000,000 class C-2B 'A-';

--$20,000,000 class D 'BBB-';

--$16,000,000 class E 'BB-'.

Attentus CDO II, Ltd./LLC (Attentus II)

--$233,413,552 class A-1 'AAA';

--$60,000,000 class A-2 'AAA';

--$55,000,000 class A-3A 'AAA';

--$5,000,000 class A-3B 'AAA';

--$20,000,000 class B 'AA';

--$32,000,000 class C 'A';

--$29,000,000 class D 'BBB+';

--$16,000,000 class E-1 'BBB-';

--$2,000,000 class E-2 'BBB-';

--$13,344,182 class F-1 'B+';

--$5,128,687 class F-2 'B+';

--$40,000,000 subordinated notes 'CCC'.

Attentus CDO III, Ltd./LLC (Attentus III)

--$100,000,000 class A-2 'AAA';

--$34,000,000 class B 'AA';

--$16,000,000 class C-1 'A';

--$15,000,000 class C-2 'A';

--$10,000,000 class D 'A-';

--$15,000,000 class E-1 'BBB';

--$7,000,000 class E-2 'BBB';

--$24,000,000 class F 'BB-'.

Kodiak CDO I, Ltd./Inc. (Kodiak I)

--$83,000,000 class B 'AA';

--$30,000,000 class C 'AA';

--$13,000,000 class D-1 'AA-';

--$5,000,000 class D-2 'AA-';

--$29,000,000 class D-3 'AA-';

--$5,000,000 class E-1 'A';

--$29,000,000 class E-2 'A';

--$7,000,000 class F 'BBB+';

--$50,000,000 class G 'BB';

--$27,706,772 class H 'B-'.

Kodiak CDO II, Ltd./Inc. (Kodiak II)

--$81,000,000 class B-1 'AA+';

--$5,000,000 class B-2 'AA+';

--$38,000,000 class C-1 'AA-';

--$2,000,000 class C-2 'AA-';

--$36,000,000 class D 'A';

--$35,000,000 class E 'BBB';

--$43,000,000 class F 'BB'.

Taberna Preferred Funding I, Ltd. (Taberna I)

--$320,495,956 class A-1A 'AAA';

--$13,504,043 class A-1B 'AAA';

--$87,000,000 class A-2 'AA';

--$64,000,000 class B-1 'AA';

--$10,000,000 class B-2 'AA';

--$37,750,000 class C-1 'A';

--$25,750,000 class C-2 'A';

--$4,500,000 class C-3 'A';

--$13,500,000 class D 'BBB+';

--$29,888,477 class E 'BBB'.

Taberna Preferred Funding II, Ltd. (Taberna II)

--$379,205,399 class A-1A 'AAA';

--$100,963,435 class A-1B 'AAA';

--$9,480,135 class A-1C 'AAA';

--$86,500,000 class A-2 'AAA';

--$120,500,000 class B 'AA';

--$73,750,000 class C-1 'BBB+';

--$26,000,000 class C-2 'BBB+';

--$15,000,000 class C-3 'BBB+';

--$31,823,490 class D 'BBB';

--$30,490,189 class E-1 'BB';

--$10,213,826 class E-2 'BB';

--$43,612,981 class F 'B'.

Taberna Preferred Funding III, Ltd. (Taberna III)

--$91,250,000 class B-1 'AA';

--$7,500,000 class B-2 'AA';

--$36,500,000 class C-1 'A-';

--$52,000,000 class C-2 'A-';

--$43,750,000 class D 'BBB-';

--$32,504,510 class E 'B+'.

Taberna Preferred Funding IV, Ltd. (Taberna IV)

--$45,000,000 class C-1 'A-';

--$20,000,000 class C-2 'A-';

--$35,000,000 class C-3 'A-';

--$21,000,000 class D-1 'BBB-';

--$13,000,000 class D-2 'BBB-';

--$24,375,000 class E 'B+'.

Taberna Preferred Funding V, Ltd. (Taberna V)

--$60,000,000 class A-1LB 'AAA';

--$90,000,000 class A-2L 'AA';

--$50,000,000 class A-3L 'BBB';

--$35,000,000 class A-3FV 'BBB';

--$25,000,000 class A-3FX 'BBB';

--$40,500,000 class B-1L 'B+';

--$23,581,074 class B-2L 'CCC+';

--$5,122,890 class B-2FX 'CCC+.

Taberna Preferred Funding VI, Ltd. (Taberna VI)

--$49,490,200 class A-1A 'AAA';

--$301,890,218 class A-1B 'AAA';

--$90,000,000 class A-2 'AAA';

--$18,000,000 class B 'AA+';

--$97,000,000 class C 'AA';

--$43,000,000 class D-1 'A-';

--$10,000,000 class D-2 'A-';

--$17,350,653 class E-1 'BBB-';

--$17,354,535 class E-2 'BBB-';

--$15,373,858 class F-1 'B+';

--$10,251,050 class F-2 'B+'.

Taberna Preferred Funding VII, Ltd. (Taberna VII)

--$50,000,000 class A-2LB 'AA';

--$57,000,000 class A-3L 'A';

--$40,000,000 class B-1L 'BBB';

--$30,000,000 class B-2L 'BB-'.

Taberna Preferred Funding VIII, Ltd. (Taberna VIII)

--$37,000,000 class E 'BBB';

--$43,000,000 class F 'BB'.

Trapeza CDO X, Ltd./Inc. (Trapeza X)

--$69,000,000 class A-2 'AAA';

--$31,000,000 class B 'AA';

--$21,000,000 class C-1 'A-';

--$35,000,000 class C-2 'A-';

--$22,000,000 class D-1 'BBB-';

--$22,000,000 class D-2 'BBB-';

--$39,500,000 subordinate notes 'B+'.

Trapeza CDO XI, Ltd./Inc. (Trapeza XI)

--$53,000,000 class A-2 'AAA';

--$20,000,000 class A-3 'AAA';

--$25,000,000 class B 'AA';

--$33,000,000 class C 'A';

--$22,500,000 class D-1 'A-';

--$18,500,000 class D-2 'A-';

--$13,000,000 class E-1 'BBB';

--$5,000,000 class E-2 'BBB';

--$10,000,000 class F 'BB'.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, . Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site. Fitch means Fitch, Inc., Fitch Ratings, Ltd. and their subsidiaries including Derivative Fitch, Inc. and Derivative Fitch Ltd. and any successor or successors thereto.