Fitch Affirms 1 & Lowers 2 Classes of ACA ABS 2002-1; Resolves Negative Watch

Business Wire, August 29, 2008

NEW YORK -- Fitch Ratings has downgraded two classes and affirmed one class of notes issued by ACA ABS 2002-1, Limited/LLC (ACA ABS 2002-1). Fitch has also removed classes B and C from Rating Watch Negative. The following rating actions are effective immediately:

--$55,364,063 class A notes affirmed at 'AAA';

--$64,000,000 class B notes downgraded to 'B' from 'BBB-';

--$16,152,750 class C notes downgraded to 'CC' from 'CCC'.

Fitch's rating actions reflect the significant collateral deterioration within the portfolio, specifically from subprime U.S. residential mortgage-backed securities (RMBS), manufactured housing RMBS, and structured finance (SF) collateralized debt obligations (CDOs) with underlying exposure to subprime RMBS.

ACA ABS 2002-1 is a cash flow SF CDO that closed on July 29, 2002 and was managed by ACA Management, LLC until April 2008, when management duties were transferred to Solidus Capital, LLC. Currently, 34.9% of the portfolio is comprised of subprime RMBS, 22.7% consists of asset-backed securities (ABS), 14% consists of manufactured housing RMBS, 11.6% consists of commercial mortgage-backed securities (CMBS), and 8.4% consists of CDOs. The remaining 8.4% of the portfolio is comprised of U.S. Alternative-A (Alt-A) RMBS and prime RMBS.

Since Fitch's last rating action on Nov. 21, 2007, approximately 28% of the portfolio has been downgraded, with 4.8% of the portfolio currently on Rating Watch Negative. The collateral deterioration has caused the class C overcollateralization (OC) ratio to fall to 93.7% as of the latest trustee report dated July 25, 2008, failing its required level of 101.5%. The class C interest coverage (IC) test is also failing, at a level of 104.1% versus a trigger of 106%. Additionally, the class A/B IC test was failing at 66.8% on the payment date that occurred in May 2008, indicating insufficient interest proceeds to fulfill the class B interest payment. This led to over $440 thousand of principal proceeds being used to make up the interest shortfall, which, in turn, further reduced the amount of par coverage available to the notes. Interest due on the class C notes at the May 2008 payment date was paid-in-kind by increasing the par balance of the notes by the amount of interest owed. The class C notes did, however, receive their scheduled interest payment at the August 2008 payment date.

Additionally, as a result of the collateral deterioration, 26.8% of the portfolio is now rated below investment grade. 12.6% of the portfolio is rated 'CCC ' or below, and Fitch expects minimal principal recoveries on these assets. The expected losses on the assets rated 'CCC ' or below will erode the majority of the credit enhancement available to the class B notes and will exceed Fitch's calculated level of class C credit enhancement. The class A notes are amortizing and are expected to continue to perform.

The ratings on the classes A and B notes address the timely receipt of scheduled interest payments and the ultimate receipt of principal as per the transaction's governing documents. The rating on the class C notes addresses the ultimate receipt of interest payments and ultimate receipt of principal as per the transaction's governing documents.

Fitch is reviewing its SF CDO approach and will comment separately on any changes and potential rating impact at a later date. Fitch will continue to monitor and review this transaction for future rating adjustments. Additional transaction information and historical data are available on the Fitch Ratings web site at www.fitchratings.com.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. 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.