Fitch Affirms 1 Tranche & Downgrades 3 Tranches of Solstice ABS CDO

Business Wire, Oct 29, 2004

NEW YORK -- Fitch Ratings affirms one tranche of Solstice ABS CDO Ltd as follows:

-- $222,925,179 class A notes affirmed at 'AAA';

Additionally, Fitch downgrades three tranches of Solstice ABS CDO Ltd as follows:

-- $50,000,000 class B notes to 'AA-' from 'AA';

-- $10,605,472 class C notes to 'BBB' from 'A-';

-- $13,250,000 preferred shares to 'B' from 'BB-'.

Solstice ABS CDO Ltd (Solstice) is a collateralized debt obligation (CDO) managed by Rabobank International. The CDO was established in April 2001 to issue approximately $300 million in notes and preference shares. The proceeds were utilized to purchase an investment portfolio consisting primarily of CDOs, residential mortgage-backed securities (RMBS), commercial mortgage-backed securities (CMBS), asset-backed securities (ABS), corporate debt securities, and real estate investment trusts (REITs). Payments are made semi-annually and the reinvestment period ended in May, 2004. In conjunction with the review, Fitch discussed the current state of the portfolio with the asset manager and their portfolio management strategy considering the reinvestment period has ended.

Since the last rating action in February 2003, the class A overcollateralization (OC) ratio decreased from 132.3% to 118.5%, the class B OC ratio decreased from 108.3% to 96.8%, and the class C OC ratio decreased from 104.4% to 93.2%, as reported on the Sept. 30, 2004 trustee report. Subsequently, classes A, B, and C OC ratios are currently failing their equivalent tests of 120%, 105%, and 125%, respectively. Overall, the portfolio has experienced negative performance through impaired and defaulted assets, along with a negative change to the weighted average rating factor. Since the last rating action, assets rated below 'BBB-' have increased from approximately 12% to over 25% of Solstices' outstanding collateral debt securities. Solstices' portfolio did not include any defaulted assets when last reviewed in February 2003; however, the number has increased to more than 4.5% of the total collateral debt securities or approximately $13 million, as of the most recent trustee report. Additionally, as of the most recent distribution date in May 2004, the class C notes failed to pay all interest due and are currently PIKing. Accordingly, Fitch has determined that the ratings assigned to all rated securities, as indicated above, reflect the current risk to noteholders.

The ratings of the classes A and B notes address the timely payment of interest and the ultimate payment of principal. The rating assigned to the class C notes addresses the ultimate receipt of interest and the stated principal amount by the final maturity date. The rating of the preferred shares addresses the ultimate payment of the initial preference share rated balance and the ultimate payment of a yield on the preference share rated balance equal to a contingent annual coupon of 3%.

Fitch will continue to monitor and review this transaction for future rating adjustments as needed. Additional deal information and historical data are available on the Fitch Ratings web site at 'www.fitchratings.com'.