Fitch Affirms 7, Lowers 6 & Places 4 SF CDO Asset Managers on Watch Negative

In light of adverse credit developments in the residential mortgage-backed securities (RMBS) sector and their consequences for structured finance (SF) collateralized debt obligations (CDOs), Fitch has completed a focused CDO performance review of all SF CDO asset managers to which it has assigned a CDO Asset Manager (CAM) rating. In summary, Fitch affirms seven, downgrades six and places four CAM ratings on Rating Watch Negative. Additionally, three managers remain on Rating Watch Negative by Fitch.

The objective of Fitch's global SF CDO asset manager review, announced at the beginning of October, has been to ensure a consistent framework for evaluating managers' performance at this point in the credit cycle. Fitch's normal CDO surveillance practices, which include regular dialogue with each manager concerning portfolio performance, will continue to apply for both rated and non-rated CDO asset managers.

Fitch's rating actions follow full annual reviews of four SF managers and focused CDO performance reviews of 18 SF CDO managers. The performance category score has deteriorated to varying degrees for all managers due to the extensive Negative Rating Watch and downgrade actions that have affected the SF sector and its related CDOs this year. The deterioration in the performance category was significant enough in six of the 22 reviewed cases to warrant, in Fitch's opinion, a CAM rating downgrade at this time. Four managers' CAM ratings remain under normal review.

It should be noted that Fitch's CAM performance category is one of seven categories contributing to a manager's overall rating as described in more detail below. Fitch continues to closely monitor all rated managers and the effect of SF CDO rating actions on the managers' CAM ratings.

The following rating actions are effective immediately:

Bear Stearns Asset Management

--'CAM3' remains on Rating Watch Negative.

BlackRock, Inc.

--SF CAM rating affirmed at 'CAM1-'.

Cairn Financial Products

--SF CAM rating affirmed at 'CAM2-'.

C-BASS Investment Management

--'CAM3' remains on Rating Watch Negative.

Declaration Management and Research, LLC

--SF CAM rating downgraded to 'CAM3' from 'CAM2-'.

Duke Funding Management, LLC

--SF CAM rating downgraded to 'CAM2+' from 'CAM1-' and placed on Rating Watch Negative.

E-Trade Global Asset Management

--'CAM4' remains on Rating Watch Negative.

First Republic Inv. Mgmt. (Trainer Wortham)

--'CAM2' placed on Rating Watch Negative.

GE Asset Management

--SF CAM rating downgraded to 'CAM3+' from 'CAM2-'.

Pacific Investment Management Company

--SF CAM rating affirmed at 'CAM2'.

Prudential M&G

--SF CAM rating affirmed at 'CAM2+'.

Rabobank

--SF CAM rating downgraded to 'CAM2-' from 'CAM2' and placed on Rating Watch Negative.

Redwood Trust

--SF CAM rating affirmed at 'CAM1-'.

Solent Capital

--'CAM3' placed on Rating Watch Negative.

Trust Company of the West

--SF CAM rating downgraded to 'CAM2' from 'CAM1-'.

UNIQA Alternative Investments

--SF CAM rating affirmed at 'CAM2-'.

Vertical Capital, LLC

--SF CAM rating downgraded to 'CAM3+' from 'CAM2'.

Western Asset

--SF CAM rating affirmed at 'CAM2+'.

The following SF CDO Managers remain under normal annual review, however, updated CDO Performance scores for these managers are provided later in this press release. These managers are currently all rated 'CAM2' based on Fitch's 2006 criteria.

--Collineo Asset Management;

--Faxtor Securities;

--Gulf International Bank (UK) Limited;

--Omicron Investment Management.

Full annual reviews were conducted for the SF CDO groups of BlackRock, Inc., Declaration Management & Research, GE Asset Management and Western Asset due to the timing of their annual review cycle. Focused performance reviews were conducted for the other managers who had more recently undergone their formal annual rating reviews.

Specific rating action detail:

Bear Stearns Asset Management (BSAM)

--'CAM3' remains on Rating Watch Negative;

--CDO Performance Score of '3+' previously unscored.

BSAM's High-Grade Structured Credit Strategies team currently manages 12 structured finance CDOs, the majority of which are collateralized by high grade structured finance securities and high grade SF CDOs. BSAM's CDOs have less exposure to downgraded subprime assets versus the average observed for vintage and type. BSAM's single mezzanine structured finance CDO, Tallships Funding, has seen the highest percentage of collateral downgrades of all of BSAM's CDOs at 24% exposure to downgraded sub-prime assets. The rating remains on Rating Watch Negative pending a resolution of BSAM's future CDO asset management strategy and platform.

BlackRock, Inc.

--SF CAM rating affirmed at 'CAM1-';

--CDO Performance Score downgraded to '2' from '1-'.

BlackRock's scores for each group of criteria factors are summarized as follows:

--Company and Management Experience '1';

--Staffing '1-';

--Procedures and Controls '1-';

--Portfolio Management '1';

--CDO Administration '1-';

--Technology '1';

--CDO Portfolio Performance '2'.

BlackRock's CAM rating was re-scaled to match 2007 criteria prior to Fitch's annual review and CAM rating update. BlackRock's rating affirmation is based on an experienced and stable senior management team, the quality of its technology resources, and the company's attention to maintaining staffing resources utilized in administering and managing its CDOs. While certain transactions in BlackRock's SF CDO portfolio have experienced some performance deterioration, BlackRock's overall performance versus its peers has been above average in this challenging environment.

Cairn Financial Products Limited (Cairn)

--SF CAM rating affirmed at 'CAM2-';

--CDO Performance Score downgraded to '3' from '2'.

This action follows the deteriorating performance of Cairn's six US SF CDOs issued between 2005 and 2007. The CAM rating affirmation is primarily based on Cairn's successful, albeit recently established, business franchise, the deep experience of the executive management team, and the demonstrated commitment to the core CDO platforms. As a result, Fitch believes that Cairn is well-positioned to survive the current turmoil and successfully finalize the institutionalization of its business platform.

C-BASS Investment Management (CIM)

--'CAM3' remains on Rating Watch Negative;

--CDO Performance Score downgraded to '2-' from '1-'.

The lowering of CIM's performance score reflects the recent downgrade actions affecting CIM's 2006 and 2007 vintage SF CDOs, motivated by adverse credit migration of the CDOs' underlying collateral. CIM's rating remains on Rating Watch Negative by Fitch pending the expected resolution of CIM's future operational status, the final outcome of which is expected in the near term.

Declaration Management and Research, LLC (Declaration)

--SF CAM rating downgraded to 'CAM3' from 'CAM2-';

--CDO Performance Score downgraded to '3-' from '3'.

Declaration's scores for each group of criteria factors are summarized as follows:

--Company and Management Experience '1-';

--Staffing '2+';

--Procedures and Controls '2';

--Portfolio Management '2';

--CDO Administration '2';

--Technology '2';

--CDO Portfolio Performance '3-'.

Declaration's CAM rating was re-scaled to match 2007 criteria prior to Fitch's annual review and CAM rating update. Tranches from several of Declaration's thirteen managed SF CDOs have either been placed on Rating Watch Negative or downgraded. Credit profiles of most of its SF CDOs continue to deteriorate. Declaration's early vintage SF CDOs also continue to perform poorly.

Duke Funding Management, LLC (Duke)

--SF CAM Rating downgraded to 'CAM2+'from 'CAM1-' and placed on Rating Watch Negative;

--CDO Performance Score downgraded to '3+' from '2+'.

Duke's rating downgrade reflects the deterioration in its CDO portfolio performance since its last CAM rating update. Duke manages 14 structured finance CDOs - four high grade transactions and 10 mezzanine CDOs. The Rating Watch Negative reflects Fitch's ongoing concerns related to parent company Ellington Management Group's hedge fund activities and their possible impact on Duke's management of its outstanding CDOs.

E-Trade Global Asset Management (ETGAM)

--'CAM4' remains on Rating Watch Negative;

--CDO Performance Score downgraded to '3-' from '3'.

ETGAM's rating remains on Rating Watch Negative given publicly reported changes in E*Trade Financial's (NasdaqGS: - ) business strategy that give rise to concerns regarding the match between the organization's current competencies and wherewithal with the execution of the firm's CDO investment management mandates. In addition, Fitch has taken into consideration a CDO performance track record that is below peer group averages. ETGAM's CDOs under management contain a large percentage of 2005 and 2006 vintage mezzanine structured finance assets. Fitch has reviewed the various performance metrics of ETGAM's outstanding CDOs; adverse collateral ratings migration in four of ETGAM's five outstanding CDOs has resulted in rating downgrades and Rating Watch Negative actions taken on multiple ETGAM CDO tranches. Fitch expects to resolve ETGAM's Rating Watch Negative status based on an anticipated clarification of its strategy in the near term.

First Republic (Trainer Wortham):

--'CAM2' placed on Rating Watch Negative;

--CDO Performance Score downgraded to '3' from '2'.

First Republic's performance score adjustment is attributed to recent credit deterioration and negative rating action on two of four outstanding cash flow SF CDOs, Trainer Wortham First Republic CDO III and CDO V. Fitch anticipates resolution of the Rating Watch Negative status of First Republic's overall CAM rating following its pending formal annual review.

GE Asset Management (GEAM)

--SF CAM rating downgraded to 'CAM3+' from 'CAM2-';

--CDO Performance Score of '3' previously unscored.

GEAM's scores for each group of criteria factors are summarized as follows:

--Company and Management Experience '2';

--Staffing '3+';

--Procedures and Controls '1-';

--Portfolio Management '2-';

--CDO Administration '2+';

--Technology '1-';

--CDO Portfolio Performance '3'.

GEAM's CAM rating was re-scaled to match 2007 criteria prior to Fitch's annual review and CAM rating update. GEAM's performance score can be attributed in part to the above average deterioration in portfolio quality of its 2007 vintage CDO in addition to tranche rating actions taken on its mezzanine 2005 CDO. GEAM manages four CDOs - three mezzanine CDOs and one high grade transaction. Other key drivers of GEAM's rating action include high levels of staff turnover of both the portfolio managers and senior research staff of the structured products group.

Pacific Investment Management Company (PIMCO)

--SF CAM Rating affirmed at 'CAM2';

--CDO Performance Score downgraded to '3' from '3+'.

PIMCO SF has issued six CDOs to date including five collateralized by mezzanine structured finance securities, and one collateralized by high grade structured finance securities. The team issued its first CDO, Pacific Coast, in 2001 and had seen some distress in that CDO prior to the subprime crisis. The team went on to issue four more deals between 2002 and 2004, and stayed out of the market until their most recent CDO issuance, Costa Bella, in December 2006 which is experiencing downward ratings pressure due to significant exposure to distressed sub-prime assets.

Prudential M&G

--SF CAM Rating affirmed at 'CAM2+';

--CDO Performance Score remains at '2'.

The affirmation is based on the good performance of the SF and multi-asset back CDO managed by M&G, composed of European collateral and the stability of the other CAM category scores. Overall, M&G's CAM rating reflects the significant experience of M&G in CDO management, the deep resources devoted to the platform and the clearly articulated SF investment strategies supported by thorough credit research and monitoring practices, which are effectively leveraged in the administration of its SF CDOs.

Rabobank Structured Product Portfolio Management (Rabobank SPPM)

--SF CAM Rating downgraded to 'CAM2-' from 'CAM2' and placed on Rating Watch Negative;

--CDO Performance Score downgraded to '3' from '3+'.

Rabobank SPPM's rating downgrade reflects collateral deterioration experienced by Rabobank's outstanding ABS CDOs which are primarily collateralized by mezzanine structured finance securities. Rabobank's lower performance score reflects the continuing distress of its first several CDOs issued between 2000 and 2002. While Rabobank stayed out of the CDO market in 2007, they did issue three SF CDOs in 2006 which have been performing adequately. The Rating Watch Negative is driven by the recent departures of senior members of Rabobank SPPM's core CDO management team.

Redwood Trust, Inc. (RWT)

--SF CAM Rating affirmed at 'CAM1-';

--CDO Performance Score downgraded to '2+' from '1-'.

The rating affirmation recognizes the favorable SF CDO track record established by all of the RWT SF CDOs. The performance category score adjustment to a '2+' is a result of the current market stresses affecting five SF transactions RWT issued in 2006 and 2007, including; Acacia CDO 9, 10, 11, 12 and the Acacia Option Arm CDO 1. Although these transactions are currently performing, market conditions have resulted in some negative collateral ratings migration of the underlying assets in the portfolios.

Solent Capital Group (Solent)

--'CAM3' placed on Rating Watch Negative;

--CDO Performance Score of '3' previously unscored.

This action follows the deteriorating performance of Solent's SF CDOs, as well as adverse market circumstances which have affected Solent's business and which are expected to impair the company's financial condition. Fitch also places Solent's CAM2+ IG Corp CAM rating on Rating Watch Negative given these concerns. Fitch will perform a full review of Solent and expects to resolve the Rating Watch within the next several months.

TCW Credit Mortgage Group (TCW)

--SF CAM Rating downgraded to 'CAM2' from 'CAM1-';

--CDO Performance Score downgraded to '3' from '2+'.

TCW's scores for each group of criteria factors are summarized as follows:

--Company and Management Experience '1';

--Staffing '1';

--Procedures and Controls '1';

--Portfolio Management '1-';

--CDO Administration '1-';

--Technology '1-';

--CDO Portfolio Performance '3'.

TCW's CAM rating was re-scaled to match 2007 criteria prior to Fitch's annual review and CAM rating update. TCW's CAM rating downgrade can be primarily attributed to the significant credit deterioration experienced by many of its CDOs. While several of TCW's earlier vintage CDOs experienced distress prior to the current market environment, eight CDOs issued in 2007 have been the primary drivers of a lower performance score; three of eight 2007 vintage CDOs have upwards of 70% exposure to downgraded sub-prime assets. Because of TCW's transaction volume, especially in 2006 and 2007, it has been difficult for the firm to distinguish its performance from that of the broader sub-prime sector.

UNIQA Alternative Investments (UNIQA)

--SF CAM Rating affirmed at 'CAM2-';

--CDO Performance Score of '2-' previously unscored.

While Fitch does not formally score UAI's CDO performance due to the absence of a two-year track record for its outstanding CDOs, Derivative Fitch has assessed the performance of UNIQA's CDO as a '2-'. The CAM rating affirmation is based on the still satisfactory, albeit slightly deteriorating performance of UNIQA's single outstanding CDO and the stability of the other CAM category scores.

Vertical Capital, LLC (Vertical)

--SF CAM Rating downgraded to 'CAM3+' from 'CAM2';

--CDO Performance Score downgraded to '3' from '1-'.

Vertical's rating downgrade reflects the substantial deterioration in its CDO portfolio performance since its last CAM rating update with above average collateral deterioration in recent vintage CDOs and significant tranche rating actions on both 2006 and 2007 vintage CDOs. Vertical manages 13 structured finance CDOs - both mezzanine and high grade CDOs - backed by both RMBS and CDO collateral.

Western Asset Management Co. (Western Asset)

--SF CAM Rating affirmed at 'CAM2+';

--CDO Performance Score remains at '2'.

Western Asset's scores for each group of criteria factors are summarized as follows:

--Company and Management Experience '1';

--Staffing '1;

--Procedures and Controls '1-';

--Portfolio Management '1-;

--CDO Administration '1-';

--Technology '2+';

--CDO Portfolio Performance '2'.

Western Asset's CAM rating was re-scaled to match 2007 criteria prior to Fitch's annual review and CAM rating update. Western Asset's rating affirmation is based on stable performance in all aspects of its business, including CDO performance.

Derivative Fitch is currently performing the annual review of these managers. Rating actions will be announced at the completion of the reviews Faxtor, Collineo, Omicron and Gulf International Bank UK (GIBUK). Faxtor, Collineo, Omicron and GIBUK CDO performance was also analysed as part of the global SF CDO performance review. Updated performance scores for these managers are the following:

Faxtor

--CDO Performance score downgraded to '3+' from '2+'.

Collineo

--CDO Performance score downgraded to '2-' from '2'.

Omicron

--CDO Performance score of '2' remains unchanged.

GIBUK

--CDO Performance score downgraded to '2-' from '2'.

Fitch rates CDO asset managers by asset type, on a scale of 1 to 5, with 1 being the highest rating. The rating scale includes plus ('+') and minus ('-') designations, along with flat ratings. A manager's CAM rating is based on the firm's composite score which represents a weighted average of scores assigned for each of seven categories, in accordance with the approach outlined in the Fitch criteria report 'Reviewing and Rating CDO Asset managers' dated Jan. 2, 2007, available on the Derivative Fitch web site at .

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.