Wednesday, February 20, 2008

S&P Downgrades 28 CPDOs

LONDON (Standard & Poor's) Feb. 20, 2008—Standard & Poor's Ratings Services
said today that it has lowered its ratings on 28 constant proportion debt
obligation (CPDO) transactions. Of these, 26 were removed from CreditWatch
with negative implications, where they were placed on Dec. 20, 2007, and two
were kept on CreditWatch negative. The rating on a 29th transaction was
affirmed and remains on CreditWatch negative (see list below).

The continued placement on CreditWatch negative of transactions that are rated
'AAA' and 'AA' reflects our ongoing review of these transactions.

The rating actions we have taken today reflect our revised modeling approach.
This incorporates asset transition elements and revised assumptions using
recent data on credit spreads, volatilities, and the current lower net asset
values. For most CPDO transactions, there is an increased risk that asset
values may not be able to build value sufficiently for the structures to "cash
in," i.e., reach a net asset value (NAV) where all future interest payments
and principal are covered. We will publish detailed methodology and
assumptions in due course.

The main feature of the revised modeling approach is the introduction of a
multi-period rating transition framework, which models the ratings on the
assets in the underlying portfolio. We also model the spread levels for each
asset using the spread parameters for the relevant rating level of the asset.
The revision of the spread parameters takes into account the levels seen in
recent market volatility.

The downgrades depend on the specific structural features of the different
transactions. These structural differences are primarily in the leverage
functions, the maximum leverage positions, the coupon structures, and the
coupon levels for each transaction. Transactions that provide for variable
leverage functions and lower coupons are the least-affected.

The NAV of structures with lower maximum leverage (i.e., nine times as opposed
to 15 times maximum leverage) or variable leverage functions are currently
greater than those with higher maximum leverages. The reason for this is that
CPDOs tend to assume maximum leverage at the beginning of a transaction, and
there has been significant spread-widening since July 2007. This will lead to
a larger decline in NAV for higher-leveraged structures. Also, transactions
that either pay a lower margin (i.e., 100 bps as opposed to 200 bps), or
structures that pay a variable coupon depending on the current spread level,
will distribute less from their returns as interest; as a result, their NAV
will be relatively higher than structures with higher coupons.

Recent market conditions have had a considerable effect on the volatilities of
the CDX and Itraxx indices, to which the CPDOs reference. Spreads in the
on-the-run equally-weighted CDX/Itraxx indices have widened considerably over
recent months, reaching a peak of over 100 bps in February 2008 from a low of
about 25 bps in February 2007. Furthermore, the rolling three-month and
one-year volatilities for the percentage returns in the aggregate index
exhibited high variation. The one-year rolling volatility shows a spike from
slightly below 20% in July 2006 to 66% in January 2008. In recent months, the
three-month rolling volatility was greater, exceeding 100%, and the one-month
rolling volatility showed spikes of 140%.

The past year has thus added additional volatility for the index returns,
which increased from an annualized figure of 26% in July 2006 to almost 42% as
of February 2008.

RATINGS LIST

ISSUER RATING
TO FROM

RATINGS LOWERED AND REMOVED FROM CREDITWATCH NEGATIVE

Castle Finance I Ltd.
$10 Million Surf Constant Proportion Debt Obligation Notes Series 5
BBB+ AAA/Watch Neg

Castle Finance I Ltd.
¥2.5 Billion Surf Constant Proportion Debt Obligation Notes Series 6
BBB+ AAA/Watch Neg

Castle Finance I Ltd.
€325 Million Surf Constant Proportion Debt Obligation Notes Series 7
BBB AAA/Watch Neg

Castle Finance I Ltd.
$100 Million Surf Constant Proportion Debt Obligation Notes Series 8
BBB AAA/Watch Neg

Castle Finance I Ltd.
€60 Million Surf Constant Proportion Debt Obligation Notes Series 9
BBB AAA/Watch Neg

Castle Finance I Ltd.
€75 Million Surf Constant Proportion Debt Obligation Notes Series 10
BBB AAA/Watch Neg

Chess II Ltd.
$100 Million Surf Constant Proportion Debt Obligation Floating-Rate Notes
Series 24
BBB+ AAA/Watch Neg

Chess II Ltd.
€100 Million Surf Constant Proportion Debt Obligation Floating-Rate Notes
Series 25
BBB+ AAA/Watch Neg

Chess II Ltd.
¥5 Billion Surf Constant Proportion Debt Obligation Floating-Rate Notes Series
26
BBB+ AAA/Watch Neg

Chess II Ltd.
€45 Million Surf Constant Proportion Debt Obligation Floating-Rate Notes
Series 27
BBB+ AAA/Watch Neg

Chess II Ltd.
€250 Million Surf Constant Proportion Debt Obligation Floating-Rate Notes
Series 28
BBB+ AAA/Watch Neg

Chess II Ltd.
$30 Million Surf Constant Proportion Debt Obligation Floating-Rate Notes
Series 30
BBB AAA/Watch Neg

Chess II Ltd.
CHF200 Million Surf Constant Proportion Debt Obligation Fixed-Rate Notes
Series 31
BBB AAA/Watch Neg

Chess II Ltd.
€10 Million WGZ INCO 2006 Constant Proportion Debt Obligation Notes Series 32
BBB AAA/Watch Neg

Chess II Ltd.
€50 Million Surf Constant Proportion Debt Obligation Notes Series 33
BBB AA/Watch Neg

Chess II Ltd.
€20 Million Secured Floating-Rate Index Booster Notes Series 34
BBB AAA/Watch Neg

Chess II Ltd.
€20 Million Senior Secured Floating-Rate Index Booster Notes Series 38
BBB AAA/Watch Neg

Chess II Ltd.
€50 Million Constant Proportion Debt Obligation Notes Series 39
A- AAA/Watch Neg

Eirles Two Ltd.
$40 Million Floating-Rate Secured Notes Series 313
A+ AA/Watch Neg

Motif Finance (Ireland) PLC
€5 Million Adjustable Leverage Debt Obligations Series 2007-3
A AAA/Watch Neg

Motif Finance (Ireland) PLC
$10 Million Adjustable Leverage Debt Obligations Series 2007-4
A AAA/Watch Neg

Motif Finance (Ireland) PLC
A$26 Million Adjustable Leverage Debt Obligations Series 2007-6
A AAA/Watch Neg

Rembrandt New Zealand Trust No. 2006-1
NZ$70 Million Floating-Rate Notes
BBB+ AAA/Watch Neg

Rembrandt Australia Trust No. 2006-2
A$50 Million Floating-Rate Notes
BBB+ AAA/Watch Neg

Rembrandt Australia Trust No. 2006-3
A$40 Million Community Income Constant Proportion Debt Obligation Notes
BBB+ AAA/Watch Neg

Saphir Finance PLC
€77 Million Dynamic Participation Investment Return Obligation Notes Series
2006-11 (Antara Capital)
A+ AAA/Watch Neg

RATINGS KEPT ON CREDITWATCH NEGATIVE AND LOWERED

Castle Finance I Ltd.
€50 Million Surf Constant Proportion Debt Obligation Notes Series 12
AA/Watch Neg AAA/Watch Neg

Chess II Ltd.
€40 Million Surf Constant Proportion Debt Obligation Fixed-Rate Notes Series
29
AA/Watch Neg AAA/Watch Neg

RATING KEPT ON CREDITWATCH NEGATIVE AND AFFIRMED

Coriolanus Ltd.
A$13 Million Floating-Rate Secured Notes Series 43
AAA/Watch Neg AAA/Watch Neg

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