Fitch - 2009 Structured Finance Outlook

8/8/2019 Fitch - 2009 Structured Finance Outlook

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Structured Finance

Special Report 2009 U.S. Structured FinanceOutlook

SummaryThe U.S. is entering a severe recession driven by a contraction in credit. The rapidlyunfolding financial crisis that has taken hold over the past six months has few historicaparallels from which to gauge the possible depth and length of this downturn. Thecomplexity also makes it difficult to determine the ultimate impact on the economyThese factors have affected all assets classes within structured finance and wilcontinue to pressure ratings in 2009.

In 2008, the U.S. structured finance markets witnessed unparalleled market turmoil and

liquidity challenges. Developments in the mortgage and financial markets led todislocations to varying degrees across all structured finance markets. Consistent with thesedisruptions and the spillover into the real economy, negative rating volatility reachedunprecedented levels, as shown in the charts on page 2 and in the table of the Appendix opage 17. Although certain individual market sectors remained resistant to these pressurefor much of the year, most notably commercial mortgage-backed securities (CMBS) andconsumer-related asset-backed securities (ABS), no major market sector has remained fullyimmune from the downdraft caused by turbulence in the financial markets.

Overall, Fitch Ratings expects to see significant negative rating effects in 2009 acrossbroad market sectors due to continued turbulence in the financial markets and adramatic slowdown in the real economy. However, the high investment-grade ratings foseven of the 14 asset classes discussed in this report are generally expected to have

ratings stability. Fitch anticipates that the AAA through A ratings on prime credit cardprime autos, FFELP student loans, large loan, and multiborrower commercial mortgagetransactions and investment-grade corporate collateralized debt obligations (CDOs)among others, will remain well insulated from the tumultuous conditions and havelimited risk of downgrade actions. In contrast, the AAA through A rated tranches fothe remaining seven sectors, including all areas of residential mortgages, are moresusceptible to downgrades due to continued substantial deterioration in collateraperformance. The BBB and below rating categories in all of the sectors are at thegreatest risk of downgrades given their positions in the capital structure and sensitivity todeteriorating macroeconomic conditions.

Sector HighlightsHighlights from Fitchs sector outlooks include the following:

Credit card chargeoffs are likely to exceed 7.5% by midyear 2009 and approach 8.5%in early 2010. Fitch expects most credit card issuers to demonstrate resilience andtake responsive portfolio management actions, which should result in few negativerating actions on credit card ABS, particularly among the AAA rated classes.

Higher loss frequency and severity on prime auto loan ABS will drive delinquencies of 60days or more to 1.25% and annualized net losses (ANL) to 2.75%. The impact on ratingshould be mostly limited to the subordinate tranches of prime auto ABS because basecase loss proxies were derived in part from prior recessionary periods and transactionsbenefit from structural features, amortization, and credit enhancement.

Analysts

Asset Backed SecuritiesKevin Duignan+1 212 [email protected]

Residential Mortgage-Backed SecuritiesHuxley Somerville+1 212 [email protected]

Commercial Mortgage-Backed SecuritiesRobert Vrchota+1 312 [email protected]

Structured CreditKevin Kendra+1 212 [email protected]

ww w.fitchratings.com Decem


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22009 U.S. Structured Finance Outlook December 10, 2008

Despite issues within the creditmarkets, performance of studentloan ABS backed by Federal Family

Education Loan Program (FFELP)collateral remains in line withexpectations and is expected to doso in 2009. However, trustperformance has been affected bymarket conditions, particularly theinterest rate environment andresulting basis risk, affecting theavailability of excess spread andincreasing the likelihood ofnegative rating actions in 2009.

Slowing economic fundamentalsand mounting job losses, along

with turmoil in the financialmarkets and increasingforeclosures, will further depress house prices and put additional pressure on residentiamortgage-backed security (RMBS) bonds in the subprime, prime, and Alt-A segments. Inaddition, significant uncertainty remains regarding the status of loan modifications andthe government program to purchase the direct obligations of housing-relatedgovernment-sponsored enterprises (GSEs) and mortgage-backed securities (MBS).

Protracted illiquidity in the debt markets is having a marked impact in thecommercial mortgage sector, as lenders have largely stopped originating new loansRefinance risk has heightened for even stabilized performing assets while consumeretrenchment and the contraction in business investment make performance defaultincreasingly likely across property types.

Negative performance in the residential mortgage markets, tremendous realized andunrealized losses on structured investments, and the failure or near failure of severamajor U.S. financial institutions have resulted in extreme market volatility andimmobile credit markets. Looking ahead to 2009, Fitch anticipates further negativeunderlying asset performance for existing CDO transactions across virtually all CDOsectors. The declining asset performance outlooks will put negative pressure onoutstanding ratings across the capital structure except where the revised corporateCDO rating methodology has already been implemented.

Upgrade

1%

Downgrade

30%

Affirm

69%

U.S. Structured Finance Rating Actions

(As of Nov. 30, 2008)

RMBS

12%

CDOs

4%

ABS

43%

CMBS

41%

U.S. Structured Finance 2008 Rating Activity by Market Sector

(As of Nov. 30, 2008)

Upgrades

CDOs

8%

ABS

4%

CMBS

2%

RMBS

86%

Downgrades


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Ece crisis are rooted in the steep rise and subsequent fall in

arkets is that problem

rest rates

iness confidence

U.S. ABSthat consumer ABS will be negatively affected by the weak economic

onom ic OutlookThe underlying causes of thhome prices, along with poor lending practices, especially to subprime borrowers

which have led to escalating foreclosures and mounting losses on mortgages. Theslowdown in the housing market continues to affect the economy as household networth has deteriorated in concert with declines in real estate and equity values. Thepace of consumer retrenchment has increased dramatically over the past quarter asconsumers strive to improve balance sheets in the presence of the debt overhang. Thedeleveraging of U.S. households under way will weigh on spending for some time. Inanticipation of weak final demand, business investment will fall consistent with its procyclical nature. Both businesses and households face difficult borrowing conditionresulting from the deleveraging of risk throughout the financial system that hasconstrained credit availability and restrained economic growth.

One of the key risks to both the economy and structured finance min the labor market will seep back into housing, further exacerbating and extending the

existing economic downturn and weakening collateral performance across sectors. Fitchprojects the unemployment rate to approach 8.5% by 2010, which is likely to cause homeprice stabilization to take longer than forecast and may cause home prices to extendtheir declines beyond Fitchs 30% national peak to trough price forecast.

With household credit conditions still very tight despite cuts in official inteFitch expects consumer spending to fall by 1.6% next year. This is consistent with a risein the household savings ratio to between 4% and 5% as consumers strive to improvetheir balance sheets in the presence of the debt overhang. Business investmendeclined in third-quarter 2008 after having grown by 5% in 2007. Fitch expects businessinvestment to fall by around 6% next year, in line with previous recessions. Thepreviously anticipated bottoming out in residential investment in 2009 also seems likelyto be postponed for at least one year. Fitch forecasts U.S. GDP to decline by 1.2% in2009, compared with estimated growth of 1.4% for full-year 2008.

Prospects for business investment are also deteriorating sharply as busand orders have declined and banks have tightened lending criteria. Businessinvestment declined in third-quarter 2008 after having grown by 5% in 2007. Fitchexpects business investment to fall by around 6% next year, in line with previousrecessions. The previously anticipated bottoming out in residential investment in 2009also seems likely to be postponed for at least a year. Fitch forecasts U.S. GDP todecline by 1.2% in 2009, compared with estimated growth of 1.4% for full-year 2008.

Household net worth and, thus consumer confidence, hinges on stabilization of the reaestate and equity markets. Fitch believes that the pace, volume, and flexibility of loanmodifications will gain more traction in 2009 and help slow the rate of foreclosuresAlso, government initiatives designed to facilitate the securitization market should helplower borrowing costs and create liquidity in the consumer lending, residential, andcommercial mortgage markets. However, poor labor prospects and income uncertaintywill cause consumers and business alike to remain cautious and continue to pull back onspending and investment over the near term. Until confidence in the economy isrestored, cautiousness will outweigh any benefits from the governmental and privateindustry efforts to stabilize the financial and housing markets.

Fitch expectsenvironment that will persist through 2009. Most importantly, the forecast rise in theunemployment rate will cause a significant increase in chargeoffs and losses in credi


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card and auto ABS. Fitch expects credit card chargeoffs, as measured by its primecredit card index, to increase by at least 30% from current levels by the end of 2009Similarly, auto losses, as measured by its prime annualized net loss index, are expected

to rise by 50% over the same period. Losses in private student loan ABS will alsoincrease significantly as graduates enter a contracting job market.

This has led Fitch to change its asset performance outlooks for prime auto, credit card

o AB

ABS, and private student loan ABS to declining for 2009. Given the government guaranteeFFELP student loan asset performance is expected to be the lone stable performer.

Despite the forecasts for a substantial increase in losses, both credit card and autare expected to continue to demonstrate their resistance to significant negative ratingactions as indicated by the Stable to Negative and Stable Rating Outlooks assigned tothose asset classes, respectively. In particular, AAA ratings in credit card and auto ABSare expected to remain stable. Most credit card trusts will continue to benefit fromexcess spread, as card issuers have demonstrated the ability to increase rates toconsumers to help offset increased chargeoffs. Fitch-rated prime auto loan ABS have also

demonstrated solid performance, continuing to build enhancement despite higher lossesPrivate student loan ABS, while smaller in volume than the other asset categories, willikely show the highest vulnerability to negative rating actions at all rating levels

2009 U.S. ABS Ratings Outlooka

Market Sector/Asset ClassBroad RatingCategory Rating Outlook Outlook Comments

Prime Credit Cards AAAA Stable Transactions structured to withstand chargeoffs of 30% or more at AAArating level.

Legislation and/or regulation altering existing revenue generation andloss mitigation strategies, such as risk-based pricing, more likely toaffect lower rated tranches.

BBBBB Negative Subordinate tranches more exposed to near-term increases inunemployment levels.

Issuers proactively managing risk by increasing borrower rates andreducing credit lines.

Prime Auto Loan/Lease AAAA Stable Base-case loss proxies derived from prior recessionary periods.Transactions benefit from structural features, such as a cash reserveaccount and an overcollateralization floor, allowing rapid amortization,and building credit enhancement.

BBBBB Negative Subordinate tranches more exposed to rising unemployment rate anddeteriorating economic conditions.

Higher loss severity caused by manufacturer pressures, worseningwholesale vehicle market conditions, longer loan maturities, and higherloan to values.

Student Loans: FFELP AAAA Stable Negative rating actions mitigated by the government guarantee of atleast 97% of principal and interest.

BBBBB Stable/Negative Negative rating actions to increase on subordinate tranches in certainauction-rate student loan ABS deals.

Student Loans: Private AAA

BB NegativePerformance deterioration as a result of a weakening economy.

Private student loan servicing quality.Seller/servicer financial strength.Highly levered transactions.

aPotential for negative rating volatility relative to 2008.


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Prime Credit Card ABSNegat ive

rd collateral and ratings performance remained

ntinue to perform within Fitchs expectations. However, brisk

ce in

The effect of rising unemployment, stagnant wages, and further home price

mpaired osed regulatory and legislative changes which will squeezeDes demonstrate

Prime Auto ABSable

ok: Decliningformance to be negatively affected by both los

Rat ings Outlook: Stable to

Asset Performance Out look: Declining

Until the third quarter of 2008, credit castable in spite of disruptions in the housing and credit market. The fourth quarterbrought the first credit card ABS downgrades of the year (Washington Mutual) andnoticeable performance pressures across the industry. Tight credit conditions and adeteriorating employment situation driven by mass layoffs are depressing consumeconfidence and significantly curtailing discretionary spending. Prime delinquencies andlosses have climbed steeply due to rising unemployment and personal bankruptcy filinghome price depreciation, and a lack of alternative credit and debt consolidationoptions, such as HELOCs.

Currently, most trusts coincreases in delinquencies and losses have not abated and are likely to continuethroughout 2009. This will compress excess spread throughout the year, and many trusts

will be forced to trap for their class C reserve accounts. Fitch believes chargeoffs arelikely to exceed 7.5% by midyear and approach 8.5% in early 2010. In addition, Fitchexpects declines in monthly payment rates (MPR) as borrowers trim spending, revolvermake smaller payments, and delinquency rates climb. Total credit card receivablesoutstanding will shrink as consumers reduce their purchase volume and issuers continue tobe more selective in extending credit to both new and existing cardholders. As managedreceivables shrink, the trusts may also become smaller, creating potential distortion incoincident loss rates, and sellers percentages will contract toward the minimum.

Although stable issuance and solid servicing platforms have reinforced performanthe past, there will be pervasive uncertainty in the sector throughout 2009 as thehousing and financial markets search for a bottom. Concerns include:

depreciation on consumers willingness and ability to service existing debt.

A potential shift in spending behavior as consumers deleverage, causing ireceivables generation.

Risk associated with propprofit margins and induce issuers to make credit cards less accessible.

pite all of these pressures, Fitch expects most credit card issuers toresilience and take responsive portfolio management actions, which should result infew negative rating actions on credit card ABS, particularly among the AAA ratedclasses. For instance, credit card issuers have been proactive in increasing rates andintensifying their collections efforts, which will help offset some of the spreadcompression. The credit card securitization business models have effectively weatheredprevious economic downturns and should continue to do so in 2009 despite the severityof the current and forecast recessionary environment.

Rat ings Outlook: St

Asset Perf ormance Out loFitch expects prime auto loan ABS loss perfrequency and loss severity in 2009. Looser underwriting, including longer loan terms andhigher loan-to-value ratios (LTVs), has driven loss severity higher since mid-2007, and thecontinued weakness in the wholesale vehicle market and poor state of certainmanufacturers will continue to plague auto loss severity in 2009. More importantly, the


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onset of the recession in the U.S., including the significant rise in unemploymenbeginning in 2008 and expected carryover into 2009, combined with the poor health oU.S. household consumer finances, will exacerbate auto loan defaults in 2009.

Fitch projects the combined impact of increasing loss frequency and severity on it

ve asset performance expected in 2009, the impact on

Student Loans: FFELPo Negat ive

ets, performance for FFELP collateral remains in

ined stable, trust performance has been

rate market, Fitch expects that negative rating

e credit markets, issuers have since resorted to accessing

prime auto loan ABS indices will drive delinquencies of 60 days or more to 1.25% andANL to 2.75%, both more than 50% higher than 2008 highs. Additionally, projectedcumulative net losses for both the 2007 and 2008 vintages are expected to exceed3.25% versus the 2.4% cumulative net loss number posted by the 2001 vintage, theweakest in recent memory.

Despite the significant negatiratings should be mostly limited to the subordinate tranches of prime auto ABS, as basecase loss proxies were derived in part from prior recessionary periods and transactionsbenefit from structural features, such as a cash reserve account and anovercollateralization floor, allowing rapid amortization, and building credienhancement. Finally, current performance trends will dictate higher necessary credi

enhancement levels in any new issuance moving into 2009 and beyond.

Rat ings Outlook: Stable t

Asset Perf ormance Outlook: StableDespite issues within the credit markline with expectations and is expected to remain so in 2009. Deferment andforbearance levels have been relatively constant throughout 2008 at approximately 13%and 10%, respectively. Prepayments have slowed as borrowers do not have the sameincentives to consolidate since the borrower interest rates for Stafford and PLUS loanare now fixed and fewer lenders currently offer refinance options. Fitch expects claimto increase as the economy continues to weaken and the unemployment rate risesHowever, the impact on bond ratings is mitigated by the government guarantee of a

least 97% of principal and interest.

Although collateral performance has remaaffected by market conditions, particularly the interest rate environment and resultingbasis risk. Basis risk has resulted from the ongoing disruption in the auction-rate marketas well the widening spread between the three-month LIBOR (used to fund the debtand the 90-day AA financial commercial paper and 91-day Treasury bill rates, both owhich are used to calculate the special allowance payment (SAP) rates. In bothinstances, the basis risk is creating a dramatic increase in the cost of funds, affectingthe availability of excess spread, which in many trusts increases the likelihood ofnegative rating actions in 2009.

In light of the collapse in the auction-actions will increase on subordinate tranches in certain auction-rate student loan ABS

deals. In particular, subordinate bonds from transactions that have failed to build asufficient level of parity will remain most vulnerable to downgrade. Fitch has placed onRating Watch Negative the subordinate bonds of approximately 30% of the 110 auctionrate transactions it rates.

With the dislocations in thfunds under the Department of Educations (ED) Ensuring Continued Access to StudenLoans Act of 2008. While this has helped alleviate funding pressure for some lendersmany have stopped originating FFELP collateral and changed business strategies as aresult of the funding pressure


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Student Loans: PrivateRat ings Outlook: Negat ive

: Declining

d to deteriorate as losses increased above

economic conditions and the ability

y of the negative rating

hat RMBS bonds will continue to be impacted by deteriorating

borrowers generally will increase, and the

Asset Perf ormance Out look

Private student loan performance has continueexpectations in 2008, particularly for the direct to consumer (DTC) product. Highe

delinquencies across all products have raised lifetime gross loss expectations to 15%20%

for the DTC product and 10%15% for the school channel product. Additionally, borrowerecoveries for these products are expected to remain below 30% for many issuers, andfewer products benefit from third-party insurance as a consequence of the bankruptcyfiling of The Education Resources Institute (TERI).

The increase in net losses is due in part to overallof borrowers to obtain employment, which will only worsen in 2009. To mitigate thiscertain private student loan issuers have changed servicing procedures to moreaggressively cure delinquencies and further limit forbearance usage, granting borrowersthis status for shorter durations and with additional scrutiny.

Trust performance varies widely by issuer, with a majoritactions related to the National Collegiate Student Loan Trusts issued by FirstMarblehead Corp. (FMC) due to the higher expected losses and decreased recoveriesfollowing TERIs bankruptcy filing. Given that many of the FMC transactions remain onRating Watch Negative, additional downgrades are likely. With economic conditionsworsening in 2009, private student loan borrowers and co-borrowers will certainly comeunder increased pressure.

U.S. RMBSFitch expects tmacroeconomic trends such as cuts in consumer spending, increasing unemploymennumbers, and rapidly declining home values. Such negative trends have adversely

affected the availability of new mortgages, as well as the performance of outstandingmortgages and related RMBS bonds. Additionally, according to Case-Shiller data, nationahome prices are down 22% since their peak in 2006. In California, which accounts for 37%of outstanding loans in RMBS securitizations, price declines have been even steeper, down35% from their peak values. As economic conditions continue to deteriorate, Fitchforecasts that U.S. home prices will further decline nationally by as much as 10% fromcurrent values. Fitch anticipates that home price declines in California will continue todeteriorate at an increased pace, falling as much as an additional 25% from todays values

The effect of the macro economy and the lack of liquidity in the credit markets haveincreased delinquencies, slowed prepayments, and amplified losses on U.S. RMBS bondThe result of higher delinquencies (especially in the serious delinquent categories), lackof prepayments/adverse selection of loans remaining in deals, and increases in severity(due to advances and cost of maintaining a foreclosed property) have augmented actua

and expected losses for U.S. RMBS deals.

Fitch expects that financial stress for allability to repay or refinance mortgage loans will decrease, leading to furthedeterioration in the performance of all U.S. RMBS securitizations. As a result, Fitch

reviewed its 20052007 subprime portfolio in the fourth-quarter 2008 and has begun toreview its Alt-A portfolio to bring ratings in line with revised loss expectations. Inaddition to actions already taken, Fitch plans to review its prime portfolio and theremaining asset classes in 2009. Fitch expects significant rating actions to bring theratings on prime and pre-2005 subprime deals in line with revised loss expectationsOnce all of the reviews have been completed, Fitch expects the ratings to remain


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relatively stable, except for deals that experience new or unexpected performanceissues, which will be reviewed on a case-by case-basis. Fitch will monitor the effect ofmodifications on its portfolio and make adjustments as warranted.

Modification ImpactRecently, there has been considerable discussion among the government, servicers, and

nts on loan modifications. While modifications are a welcome

le principal reduction

other industry participarelief to borrowers, they may not always be in the best interest of a bondholder. Asecuritization that has modified loans should experience lower losses because loanshould re-perform. Also, the transactions face reduced writeoffs from losses at least inthe near term. However, modifications reduce cash flows on the bonds. This is becausethe modifications being contemplated are typically interest rate reductions, longeamortization terms, and forbearance of debt. If the modified loans re-default (andexperience shows that up to 50% re-default) not only will the deal suffer losses anywayjust at a later date, it will also experience reduced cash flow.

Modifications also affect certificateholders differently depending on the priority theicertificates rank in the capital structure. For example, whimodifications are not yet being widely contemplated, they front load losses. This benefitsthe senior bondholders over subordinate bondholders since the subordinate bonds are

written down earlier than they would have been without the modification. The earliewritedown stops interest payments to junior classes and reduces the impairment of creditenhancement. Due to the limited number of modifications in securitized deals, theilimited seasoning, and the lack of data surrounding their performance, it is difficult todetermine their net impact at this time. Fitch will publish a more detailed discussion onthe various modification plans and the potential impact on the bonds in 2009.

2009 U.S. RMBS Rating Outlooka

MarketSector/Asset Class

Broad RatingCategory Rating Outlook Outlook Comments

Prime AAAA Negative Deterioration in credit enhancement due to rising lossexpectations.

BBBBB Negative Higher expected losses will result in subordinate bondsexperiencing writedowns.

Alt-A AAAA Negative Stable once review initiated in Q408 iscompleted

Significant increase in expected loan losses.As subordinate bonds are written down by losses, seniortranches will experience a deep reduction in creditenhancement.

BBBBB Negative Stable once review initiated in Q408 iscompleted

Subordinate tranches to experience losses beyond originalexpectations.

Net long-term impact of modifications on loss reductionremains unclear.

Subprime AAAA 20052007 vintage Stable; pre-2005 vintage Negative 20052007 vintage Stable due to completion of recent review.Pre-2005 senior tranches may have been negatively affected bovercollateralization release and adverse selection.

BBBBB 20052007 vintage Stable; pre-2005 vintage Negative 20052007 vintage Stable due to completion of recent reviewPre-2005 vintage negative due adverse selection of remainingloans, increased severities, and delinquencies.

Loan loss/modification timing will affect bond payoffs and/orwriteoffs



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Prime RMBSk: Negat ive

: Declining

rply primarily due to weaker underwriting and

: Decliningctions on its Alt-A RMBS portfolio in response to

005-2007 Vintage: Stable

e RMBS, which continues to deteriorate

ormance outlook i

mmercial real estate fundamentals to continue to deteriorate in 2009

Rat ings Outloo

Asset Perf ormance Out look

Prime delinquencies have been rising shahigh leverage coupled with rising unemployment and declining home prices. Whileborrowers of agency (Fannie Mae and Freddie Mac) product have benefited from therecent drop in mortgage rates and have been able to refinance out of adjustable or highcost mortgages, jumbo borrowers continue to be disadvantaged by the contraction inthe credit markets. The outcome has been sharply slower prepayment speeds andgreater adverse selection among non-agency prime RMBS. In addition to risingdelinquencies and slow prepayment speeds, loss severities also have been increasing

Historically, prime severities have been about 20%30%; however, they are now rapidlyapproaching 40%. Fitch expects significant rating actions across all rating categories tobring ratings in line with its higher loss expectations.

Alt-A RMBS

Rat ings Outlook: Negat iveAsset Perf ormance Out lookIn mid-2008, Fitch began to take rating aworsening loan performance. Due to the continued pressure of the deteriorating economyon the Alt-A borrower, Fitch is reviewing the portfolio for additional rating actions toreflect the sharp decline in performance and expects a significant number of bonds acrossall rating categories to be downgraded. The asset performance outlook will remainnegative until the housing and credit markets and broader economy stabilize.

Subprime RMBSRat ings Outlook 2

Rat ings Outlook Pre 2005 Vintage: Negative

Asset Performance Out look: DecliningbprimFitch has been proactively monitoring su

at a sharp pace in concert with worsening economic conditions. As a result of the

continued decline in performance of the 20052007 vintage, Fitch initiated a secondreview in November 2008. The review resulted in numerous additional downgrades toreflect an increase in Fitchs revised loss estimates, which include a projection odeeper home price declines and rising unemployment. As a result, Fitchs outlook on20052007 subprime ratings is expected to remain relatively stable.

Fitchs outlook for pre-2005 subprime is negative, and the asset perfdeclining due to the continued deterioration in the economy, lack of available credit toconsumers, and falling home prices. Fitch will be reviewing its pre-2005 subprime portfolioin 2009 and expects material changes in the lower category ratings driven by the increasein delinquencies and losses as well as remaining loan adverse selection.

U.S. CMBSFitch expects coProtracted illiquidity in the debt markets continues to be Fitchs primary concern, asboth CMBS issuers and portfolio lenders have largely stopped originating new loansRefinance risk has risen across property sectors and loan types, making even stabilizedlow leverage fixed-rate loans less likely to repay in a timely manner. However, Fitchexpects loans collateralized by the weakest performing properties will continue to carrythe highest risk of sustaining losses, while loans backed by stabilized, strong performingcollateral are more likely to be modified and extended until they can refinance when


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liquidity ultimately becomes available. Fitch has identified approximately 2,200 nondefeased performing loans totaling USD13.3 billion with maturity dates in 2009(excluding an additional USD12.7 billion of floating-rate loans with remaining extension

options). The 2009 maturity concentration represents less than 3% of all loans in theFitch-rated universe.

Though delinquencies remain below average historical levels, commercial real estatefundamentals are showing signs of weakness. Further performance deterioration i

2009, and downgrades will likely increaseomic conditions and a sustained lack of capital continue to

ed A or higher will be concentrated in smal

likely next year as the U.S. and world economies fall deeper into a recessionSuppressed consumer spending and contracting business investment will makeperformance defaults increasingly likely across property types. During the loan termloans secured by stable assets will be best positioned for the downturn, while thoseunderwritten to pro forma cash flows or secured by less traditional properties wilremain at higher risk. As defaults are expected to increase and prepayments anddefeasance have slowed, Fitch has changed its outlook for the sector from stable tonegative and expects meaningfully more downgrades in 2009.

Multiborrower Fixed-Rate TransactionsRat ing Outlook: NegativeFixed-rate transaction upgrades will be few inSignificantly worsened econincrease refinance risk for loans in older vintage transactions. Fixed-rate loansoriginated in 2006 and 2007 may be particularly vulnerable to the economic downturnbecause of the increased number of transitional properties in multiborrowetransactions. The upgrade-to-downgrade ratio for multiborrower transactions was 0.9:1.0year to date through Nov. 30, 2008. Of the 307 classes downgraded in 2008, 76% werepreviously rated 'BB+ and below.

Fitch expects senior IG bonds to continue to be well protected in conduit transactionsNegative rating actions on classes ratbalance deals, which are typically characterized by less experienced borrowers andloans with weaker structural features than those found in conduit deals. Howeveracross fixed-rate multiborrower transactions, the pace of downgrades is expected toincrease further down the capital structure. The negative rating actions will be driven

2009 U.S. CMBS Ratings Outlooka

MarketSector/Asset Class

Broad RatingCategory Rating Outlook Outlook Comments

Multiborrower AAAA Stable Senior bonds will remain well protected due to sufficient credit enhancement.Downgrades will be concentrated in small balance deals.

BBBBB Negative Older vintage subordinate tranches may experience downgrades due to maturing loans withweak performance that face significant challenges to refinancing.

Newer vintage subordinate tranches will experience downgrades due to the deepeningrecession, making it more challenging for unstabilized properties to achieve pro forma cashflows underwritten at issuance.

Large Loan AAAA Stable Most senior bonds will experience stable performance due to the availability and anticipateexercise of remaining extension options, which will push final extended maturity dates formost loans past 2009.

A limited number of downgrades may occur in the 'A' rating category, primarily in oldervintage transactions where only the weaker performing assets remain.

BBBBB Negative Lower rated tranches will experience downward pressure on ratings due to economicconditions, causing many assets to fall behind in their stabilization schedules or makeexecution of the original business plans less feasible.

Transactions with loans approaching final maturity dates may see downgrades due to thelimited refinancing available.



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largely by adverse selection in older transactions, where remaining weak performingloans will face significant challenges to refinance, and heightened performancedefaults in more recent vintages.

Large Loan Floating-Rate Transactions

loan transactions eclipsed upgrades, withtio of 0.1:1.0. The downgrades were primarily the result o

sactions. Bonds rated in the AA category

ok: Decliningor fundamentals to weaken in 2009 driven by negative office

stment. With over 100 million square fee

ok: Decliningding will continue throughout 2009, as falling home values and

likely that spending will return to historically

Rat ing Outlook: NegativeThrough Nov. 30, 2008, downgrades to largean upgrade-to-downgrade raindividual loans failing to meet initial stabilization targets. Fitch expects this trend tocontinue as the weakening economy makes stabilization more challenging and maymake the execution of borrowers original business plans unfeasible. Extensions arelikely in 2009 on the vast majority of maturing loans with options remaining due to thecontinued dearth of refinancing options. This may run contrary to the adverse selectionseen in years past, when pools were frequently left with a higher proportion of theweakest assets as time progressed. However, floating-rate transactions from oldevintages that experienced such adverse selection may prove particularly susceptible to

credit deterioration, as extension options on the remaining loans expire and maturitydefaults become increasingly likely. In 2009, 22 performing Fitch-rated floating-rateloans totaling USD1.3 billion will reach their final extended maturity datesApproximately 100 additional loans, totaling USD12.7 billion, have remaining extensionoptions that are expected to be exercised.

In 2009, until capital is available to refinance commercial real estate, Fitch expectfew upgrades to floating-rate large loan tranor higher are likely to maintain stable performance in 2009. However, because largeloan transactions are generally concentrated in terms of loan size and typically lacpooled credit enhancement below the IG-rated classes, in certain instances, negativerating actions could adversely affect tranches at the A rating category. Downgradewill likely be concentrated at the BBB rating level, driven by the failure of certainproperties to reach stabilization during the term, the inability of nonstabilized

maturing loans to refinance, and weaker loan performance generally across propertytypes and geographic locations.

Office Property TypeAsset Perf ormance Out loFitch expects office sectemployment growth and falling business inve(sf) of office space coming on line in 2008 and a growing supply of space offered fosublease, negative absorption is expected to push vacancies higher and asking rents loweover the next year. Across most markets, momentum has shifted away from landlords infavor of tenants, with concessions becoming increasingly commonplace for new leaseand renewals. Fitch expects metropolitan office markets to continue to outperformsuburban markets. However, some cities with exposure to hard-hit sectors such, as finance

and mortgage brokeraging, are likely to lag, as large blocks of space become available.

Retail Property TypeAsset Perf ormance Out loDecreased consumer spendwindling credit availability make it unhigh levels in the near- or medium-term. Bankruptcies in 2008 for such retailers asCircuit City, Linens N Things, Sharper Image, and Mervyns are increasing vacancies incommunity centers and malls. Fitch expects that additional retailer bankruptcies andconsolidations, as well as a scaling back of new store openings, will lead to decliningdemand for retail space in 2009. New supply added in 2007 and 2008 will exacerbate


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market imbalances, pushing vacancies higher and stifling rent growth.

Multifamily Property Type

Asset Perf ormance Out look: DecFitch expects the multifamily liningsector to weaken somewhat in 2009. Demand for rentaarket declines and household formation slows

ok: Decliningrically proven most volatile during periods of economic downturn

e cases, limited advanced bookings. Businesse

ance in the U.S. residential mortgage markets, tremendous realized ands on structured investments, and the failure or near failure of severa

ge market. CRE

housing is likely to level off as the labor mThis slowing demand, coupled with a recent peak in apartment development, make itlikely that vacancies will rise and asking rents will fall slightly in 2009. However, thecurrent lack of construction financing should slow development going forward and help torestore balance to the markets over the medium term. In addition, the lack of viablefinancing options for potential homebuyers is likely to keep additional individuals in therental pool, making multifamily performance less volatile than that of other propertytypes. The weakest performing regions will continue to be those markets in the Sun Belwith significant housing availability (in the form of condominium and single-familyhousing converted to rentals), as well as those markets with limited barriers to entrywhere development continues to outstrip demand, such as Atlanta and throughout Texas

Hotel Property TypeAsset Perf ormance Out loThe hotel sector has histodue to daily resetting of rates and, in somare expected to slash travel budgets next year as a means of cost control, while consumerswith less disposable income, will likewise cut back on leisure travel. The ensuing strain onoccupancy and average daily room rates will result in a decline in revenue per availableroom (RevPAR) in 2009. Fitch expects that limited-service hotels in smaller destinationwill be most challenged in 2009. Certain coastal markets, such as New York, Orlando, SanFrancisco, and Los Angeles, where demand was supported by foreign travel through 2008will decline as the global economy slips deeper into recession.

U.S. CDOsNegative performunrealized lossemajor U.S. financial institutions have resulted in extreme market volatility and immobilecredit markets. Looking forward to 2009, Fitch anticipates further negative underlyingasset performance for existing CDO transactions across virtually all CDO sectors. Ratingactivity will be influenced by the magnitude of the negative credit deterioration of theunderlying assets relative to stresses currently expected at given rating levels. Whilethere will be macroeconomic pressures on each underlying asset type, the availability ocapital will have a meaningful impact on the timing and severity of rating activity in 2009

In the corporate market, Fitch believes that the combination of economic and fundingpressures has launched the beginning of the next cyclical wave of U.S. HY defaults. Thecoming defaults are expected to be spread across more industry sectors than the2001/2002 downturn due to the broader negative implications of depressed consume

spending. The recent loan issuance boom of 20042007, which induced increasedborrower leverage levels, may have also served to reduce the recovery rate prospectwhen borrowers default. For all but the most lowly leveraged issuers that haveobligations coming due within the upcoming year, they will be challenged to refinance aprevious levels or terms, which will add negative pressure to current operations. Clearlythere will be significant additional pressure if the federal programs being introduced toreplenish bank capital and encourage lending prove to be ineffective.

Fitch is proactively monitoring the susceptibility of commercial real estate (CRE) CDOsto the growing signs of weakness in the commercial mortga


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fundamentals are expected to continue to deteriorate in 2009 due primarily to theeconomic conditions and the protracted illiquidity in the debt markets. Fitch expectsector downgrades to exceed upgrades particularly at the bottom of the capita

structure. Therefore, CRE CDOs concentrated with below-investment-grade rated CMBSwill see the most negative underlying collateral deterioration.

Finally, Fitch is focused on the largely real estate-related pressures that continue todrive deferrals of payment obligations by bank trust preferred (TruPS) issuers. While

turned net negative in 2008, with downgradeuarter of 2008, downgrades surpassed upgrade

payment deferral is a traditional characteristic of TruPS securities, issuers of TruPS mayincreasingly choose this option to preserve capital or address cash flow limitationsFurthermore, Fitch is watchful of the migration of deferrals to default in thischallenging environment. Given the subordinate position of TruPS within the capitastructure, losses will be high in the event a default occurs.

U.S. Investment-Grade Corporate CDOsRat ings Outlook: Stable/Negative

Asset Performance Out look: DecliningFitchs IG corporate rating activityoutpacing upgrades. Through the third q

2009 U.S. CDO Ratings Outlook

Market Sector/Asset

Class

Broad Rating

Category Rating Outlook Outlook Comments

IG Corporates AAABB Stable Current ratings account for recent rating migration and credit events and incorporateFitchs view of concentration risks described in its revised corporate CDOmethodology, which should promote rating stability in 2009.

B and Below Negative Tranches previously downgraded to these levels are more vulnerable to additionallosses and may result in partial or full writeoffs of subordinate bonds in the future.

HY and Middle-Market CLO AAAA Stable Senior enhancement levels are sufficient to survive historical peak default periodsconsistent with Fitchs current corporate CDO methodology.

BBB B and Below Negative Mezzanine and subordinate tranches will have limited ability to absorb future losses atcurrent rating levels based on existing credit enhancement that accounts for bothactual and projected defaults in the future. Rating volatility is likely due to theexpected increase in defaults due to increased refinance risk in the HY sector in 2009.

Structured Finance CDOs AAAA Negative Ratings of the senior-most tranches of SF CDOs will be negatively affected in 2009, asFitch incorporates its revised view of correlated defaults for portfolios concentratedby product type and origination vintage. Some tranches may exhibit stableperformance as the senior-most tranches pay down from portfolio amortization.

Senior-most tranches of CDOs with significant U.S. RMBS exposure generally have notmaintained high IG ratings and, therefore, are not part of this category.

BBBBB Negative SF CDOs tranches with ratings in the BBB and BB rating categories may be eithermezzanine tranches from earlier vintage CDOs that typically have more diversifiedportfolios or senior tranches of more recent vintage SF CDOs with concentrations inRMBS assets. Current enhancement levels of CDOs with highly correlated portfoliosmay experience relatively more significant rating volatility due to the morewidespread impact of credit deterioration and defaults as distress in the RMBS marketcontinues.

B and Below Negative The risk to subordinate tranches consist of collateral deterioration trippingovercollateralization tests, thereby shutting off cash flows, the potential impact of anevent of default that results in liquidation of the portfolio, and the loss of creditenhancement as losses are realized on underlying assets.

CRE CDOs AAAB and Below Negative Negative rating trends are expected across the CRE CDO capital structure given the highcorrelation of commercial real estate portfolios, the negative rating migration of CMBSassets, and the expectation that CRE delinquencies and defaults will rise in 2009.

TruPS CDOs AAAB and Below Negative The underperformance and negative rating migration of banks that issue TruPS, theongoing acceleration of bank deferrals on TruPS obligations, and the growing potentiafor bank deferrals to migrate to default, combined with high correlation of TruPSportfolios, will result in downward rating pressure at all levels of the TruPS CDOcapital structure.

aPotential for negative rating volatility relative to 2008. IG Investment grade. HY High yield. CRE commercial real estate. TruPS Trust preferred.


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by a 2.5:1.0 ratio a notable change from the prior year. Beyond negative ratingactivity, the observance of seven defaults of IG issuers, all of which were financiainstitutions, well exceeded previous expectations. Looking forward to 2009, the

probability of additional defaults of large-scale issuers will have a ripple effect throughthe market as suppliers and end users are affected by these events.

Fitch anticipates declining performance from U.S. IG issuers in 2009. Across both NorthAmerica and Europe, 21% of corporate issuers were assigned either a Negative Rating

le-Market CLOs

e favorable U.S. HY corporate default environmen07 deteriorated rapidly in 2008. According to

on the

Outlook or Watch at the end of September, compared with 13% at the beginning of theyear. While Fitch is concerned about the asset performance in this sector, the revisedcorporate CDO rating methodology launched in April 2008 significantly adjusted theratings of IG corporate CDOs downward due to the criteria implications of the industryand obligor concentrations prevalent in IG corporate CDOs. In general, losses to datehave eroded credit enhancement levels such that future additional losses may result inpartial or full writeoffs for bonds. Fitch has indicated ratings, generally those rated Bor below, are particularly susceptible to negative events by providing a Rating OutlookNegative status for those bonds.

U.S. High Yield CDOs and MiddRat ings Outlook: Stable/Negative

Asset Performance Out look: DecliningThe solid fundamentals supporting ththat existed through the first half of 20financial data gathered by Fitch, the combined EBITDA of HY companies in the sectorsensitive to consumer spending fell 35% in the first half of 2008 compared with the firsthalf of 2007 (for more information, see Fitch Research on The Rising CorporateDefault Wave, dated Oct. 22, 2008, available on Fitchs web site awww.fitchratings.com). Additionally, Fitchs rating outlook on companies in thesesectors has a strong negative bias, suggesting more erosion ahead. Moreover, as debt ospeculative-grade borrowers matures in 2009, companies will be faced with the task orefinancing in an environment of scarce capital and tightened credit standardsBorrowers may not be given the option to refinance or the revised terms may not beviable. Fitch believes that the combination of economic and funding pressures halaunched the next cyclical peak in HY defaults.

For middle-market borrowers, the already limited access to capital will be furtheconstrained in 2009 as institutional lenders are expected to largely remainsidelines and banks refine their already tightened credit standards. Middle-marketborrowers may also be more susceptible to the declining consumption levels of the U.Seconomy. For middle-market borrowers that have debt coming due over the course o2009, Fitch is concerned that borrowers may have a higher likelihood of default due tlimited refinancing options and greater vulnerability to economic weakness.

The aggressive rating mix of the outstanding U.S. HY issuance will affect the profile ofthe expected increase in defaults. For example, the mix of CCC rated and below assethas continued to expand in 2008, to a record 24% of the total U.S. HY market. While Fitchexpects defaults for HY and middle-market borrowers to rise in 2009, the assumptionincorporated into the revised corporate CDO rating criteria should translate into stableratings after the criteria have initially been applied. Fitchs revised criteria benchmark to

peak default rates observed over the 30-year period from 19772007. To achieve omaintain CDO ratings in the IG category, credit enhancement should meet or exceed theworst observed historical peak default rates. Fitch expects this benchmarking to promotemore stable IG ratings during periods of stress. Furthermore, given the downward pricepressure on U.S. leveraged loans, asset managers have generally opted to retain cash


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balances rather than deal with the structural implications of reinvesting principaproceeds at discounted prices. The rising cash balances in 2009 should help offset theincreasing default risk of HY credits going forward.

U.S. Structured Finance CDOsRat ings Outlook: Negat ive

Asset Performance Out look: Decliningin the U.S. mortgage market continue to be higher than

ecedented levels of downgrades and losses on

into two categories based on their collateral compositionclassified as CMBS re-securitizations and those

Additionally, with

g

Delinquencies and defaultsanticipated, leading to ongoing and unprstructured finance securities exposed to such assets. Looking forward into 2009, homeprices are expected to continue to drop and foreclosure rates to rise driven byworsening U.S. economic conditions. This ongoing negative trend in home values will putadditional pressure on the performance of U.S. RMBS bonds in the subprime, prime, andAlt-A market segments. Finally, there is significant uncertainty around the status of loanmodifications and government-initiated programs to purchase the direct obligations ohousing-related GSEs and MBS and the potential impact on U.S. RMBS bond performance.

The rating review criteria employed by Fitch throughout 2008 has resulted, in manyinstances, in significant rating adjustments for structured finance CDOs exposed to theU.S. subprime mortgage market. The proposed rating criteria for structured financeCDOs is not expected to produce drastically different results for those transactionreviewed using the rating review criteria. However, for those structured finance CDOsthat have had limited exposure to U.S. subprime RMBS, there likely will be downwardrating pressure across the capital structure, particularly where portfolios areconcentrated in a single sector as Fitch adjusts its analytics to account for highcorrelations experienced within sectors and vintages. Following the initial ratingchanges associated with the application of the proposed rating criteria for structuredfinance CDOs, Fitch expects the ratings in this sector to remain stable over the longterm due to the robustness of the revised methodology and its assumptions.

U.S. Commercial Real Estate CDOsRat ings Outlook: Negat ive

Asset Performance Out look: DecliningU.S. CRE CDOs are classifiedthose predominantly backed by CMBS arebacked mainly by unrated commercial real estate loans (CREL) are referred to as CRELCDOs. While U.S. CMBS defaults have remained near historical lows, they areundeniably on the rise. Fitchs U.S. CMBS analysts are predicting an increase in

delinquencies to 75 bps by year-end 2008 and to 1.5%2% by year-end 2009Delinquencies in CREL CDOs already surpassed 3% as of October 2008.

The ongoing reduction in consumer spending is expected to continue into 2009, which wilhave an impact on several CMBS subsectors, including retail and hotel.

rising unemployment and corporate defaults forthcoming, performance of the office sectois also expected to decline. In addition to the negative pressure on operating performanceFitch anticipates higher defaults on underlying CRE loans in the coming year due to thelimited capital available for financing commercial real estate and issuers general lack obalance sheet liquidity. Fitch also expects macro economic conditions to continue pressureon CREL CDOs. These transactions typically contain either highly leveraged subordinatepositions or loans secured by more transitional properties than CMBS. In particulartransitional properties are finding it more difficult to meet projected forecasts.

Upon implementation of the structured finance (SF) CDO criteria, Fitch will apply therevised criteria to its portfolio of existing ratings of CMBS re-securitizations, takin


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rating actions as necessary. Given the single sector and generally thin tranche size ofthe CMBS collateral, it CMBS re-securitizations will likely experience downward ratingpressure throughout the capital structure, which in some cases will be significant. CMBS

re-securitizations backed primarily by below-investment-grade CMBS classes (oftenreferred to as CMBS B-piece re-securitizations) should witness more negative ratingmigration of the underlying collateral as they are the first tranches to be affected bydelinquencies and any resulting losses. However, following the rating changesassociated with the application of the proposed SF CDO rating criteria, ratings for CMBSre-securitizations backed by predominantly IG-rated CMBS bonds should remain stableover the long term due to the robustness of the revised methodology and its assumptions.

In 2008, classes from several CREL CDOs have either been downgraded or put on RatingWatch Negative and reinvestment cushions, as measured by the Fitch poolwide

cliningcant impact on U.S. banks and thrifts regardless of size in

r 2008, Fitch observed USD1.7 billion of TruPS

expected loss (PEL), have tightened. These negative credit metrics have been the resulof increased loan defaults, declines in reported net cash flows, and stalled or stagnatedbusiness plans for assets in transition. Given the likelihood that capital available fofinancing commercial real estate will remain constrained in the coming year and

compounded by issuers lack of liquidity on their balance sheets, Fitch anticipatehigher defaults in 2009. While CREL CDOs are generally structured with higher credienhancement and have more structural features than CMBS, Fitch expects additionadowngrades across all rating categories to this subsector as delinquencies andultimately, losses accumulate. All CREL CDOs are screened monthly for negativeperformance metrics such as increases in delinquencies, modification, or extensions.

U.S. Trust Preferred CDOsRat ings Outlook: Negat ive

Asset Perf ormance Out look: DeCredit pressures had a signifi2008. For the 12 months ended Septembedefaults, deferrals, and credit risk sales across 38 banks. As of Sept. 8, 2008, 78 of 85Fitch-rated bank TruPS CDOs experienced at least one underlying asset default o

ongoing deferral, with exposure ranging from 0.6%18.0% and averaging 5.5% of thecurrent portfolio balance. Beyond Fitchs continued concerns about the U.S. economicrecession, a number of factors are consistent among institutions that have defaulted odeferred on TruPS issuance. These factors include outsized exposure to residentiaconstruction loans and home equity loans, as well as high rates of growth prior to theonset of recent credit pressures fueled by above-average levels of TruPS issuanceand/or brokered deposits. While payment deferral has traditionally been acharacteristic of TruPS securities, the likelihood of banks choosing this option mayincrease going into 2009 as institutions opt to forgo payments to preserve capital omay not be positioned to make payments due to cash flow constraints.

Banks that issue TruPS through CDOs are expected to exhibit continued financia

underperformance through the first half of 2009, which could lead to additional deferraactivity and an increase in the rate of defaults relative to historically observed averagesAs such, Fitch expects this underperformance to translate into negative rating trendacross all rating categories as exhibited by the 75 bank and insurance TruPS CDOs that arecurrently on Rating Watch Negative. Additionally, on Dec. 2, 2008, Fitch placed ratingfrom 11 CDOs backed primarily by real estate investment trust (REIT) TruPS on RatingWatch Negative, bringing the total REIT TruPS CDOs on Rating Watch Negative to 16These most recent actions reflect the potential for ratings to be affected by the proposedchanges to correlation and recovery assumptions applied to REIT debt under the ratingmethodology for SF CDOs.


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Appendix: U.S. Structur ed Finance Rating Actions

U.S. Structured Finance

Upgrades and Downgrades

(Years Ended Dec. 31)

% of Total Tranches Outstand

Upgrades DowngradesClasses

Outstanding Upgrades Downgra

2008ABS 303 862 5,007 6.1 1RMBS 86 18,518 46,319 0.2 4CMBS 290 392 7,003 4.1 CDOs 29 1,705 4,066 0.7 4Total/Average 708 21,477 62,395 1.1 3

2007ABS 233 61 5,783 4.0 RMBS 530 4,704 47,987 1.1 CMBS 776 70 7,166 10.8 CDOs 218 1,180 4,277 5.1 2Total/Average 1,757 6,015 65,213 2.7 9

2006ABS 205 77 5,744 3.6 RMBS 1,059 501 37,738 2.8 CMBS 1,740 50 6,038 28.8 CDOs 317 108 3,749 8.5 Total/Average 3,321 736 53,269 6.2

*Data through Nov. 30, 2008. Note: Numbers may not add due to rounding.

Equipment

Lease

8.3%

Tobacco

Settlement

78.1%

Auto Loan/

Lease

12.0%

Credit Card

0.3%

U.S. ABS by Asset Type

(As of Nov. 30, 2008)

Upgrades

Note: Excludes ABCP.

Credit Card

2.6%

Equipment

Lease

0.6%

Student Loan

70.4%

Franchise

Loan

3.4%

Auto

Loan/Lease

7.5%

Other

15.5%

Downgrades

Upgrade

6%

Down-

grade

17%

Affirmed

77%

U.S. ABS Rating Actions

(As of Nov. 30, 2008)

Note: Excludes ABCP.


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Other Mortgage

and RE-Related

Residential Assets

5.8%

MH

51.2%

Alt-A

RMBS

30.2%

Prime RMBS12.8%

U.S. RMBS by Asset Type(As of Nov. 30, 2008)

Upgrades

MH Manufactured housing. RE Real estate.

M H

0.2%

Government

RMBS

0.1%

Prime RMB S

11.0%

RMBS

NIMs

0.9%

Scratch and

Dent

1.8%

Other

Mortgage

and RE-

Related

ResidentialAssets

0.6%

Alt-A

RMBS

26.9%

Subprime/

Home Equit

RMBS

58.5%

Downgrades

Upgrade

0.2%

Down-

grade

34.8%

Affirmed

65.3%

U.S. RMBS Rating Actions

(As of Nov. 30, 2008)


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Structured Finance

Affirmed

93.0%

Upgrade

3.0%

Down-

grade

4.0%

U.S. CMBS Rating Actions

(As of Nov. 30, 2008)

Large Loans

2.8%

Multiborrower

97.2%

U.S. CMBS Rating Actions by Asset Type(As of Nov. 30, 2008)

Upgrades

Large Loans

21.7%

Multi-

borrower

78.3%

Downgrades



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Structured Finance

Copyright 2008 by Fitch, Inc., Fitch Ratings Ltd. and its subsidiaries. One State Street Plaza, NY, NY 10004.Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except permission. All rights reserved. All of the information contained herein is based on information obtained from issuers, other obligors, underwriteand other sources which Fitch believes to be reliable. Fitch does not audit or verify the truth or accuracy of any such information. As a result, tinformation in this report is provided as is without any representation or warranty of any kind. A Fitch rating is an opinion as to thcreditworthiness of a security. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specificamentioned. Fitch is not engaged in the offer or sale of any security. A report providing a Fitch rating is neither a prospectus nor a substitute for tinformation assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings maychanged, suspended, or withdrawn at anytime for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sorRatings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees frissuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from USD1,000 to USD750,000 (or applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from USD10,000 to USD1,500,000 (or tapplicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and MarkeAct of 2000 of Great Britain, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing adistribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers.

Affirmed

35.5%

Upgrade

1.1%

Down-

grade

4.0%

U.S. CDO Rating Actions

(As of Nov. 30, 2008)

HY Bond

CDOs

10.3%

HY Loan

CDOs

20.7%

Market Value

CDOs

13.8%

SF CDOs

55.2%

U.S. CDO Rating Actions by Asset Type

(As of Nov. 30, 2008)

Upgrades

HY High yield. IG Investment grade. SME ?? ?. TruPS Trust preferred CDOs.

HY Bond CDO

0.3%

TruPSs

0.6%

HY Loan CDOs

1.5%

IG Corporate

CDOs

19.5%

Other CDOs0.2%

Structured

Finance CDOs

61.6%

Structured

Credit

Products

0.3%

SME CDOs

0.2%

Market Value

CDOs

15.8%

Downgrades

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Fitch - 2009 Structured Finance Outlook

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