Fitch Affirms 1 Class & Downgrades 3 Classes Grenadier Funding, Ltd.

2008-05-07 23:44:10 -

- Fitch has affirmed one class and downgraded three classes of notes issued by Grenadier Finding, Ltd. (Grenadier). The following rating actions are effective immediately:

--$1,319,021,956 Commercial paper notes affirmed at 'F1+', and removed from rating watch negative;

--$60,000,000 class A-1 notes downgraded to 'CCC' from 'AAA', and removed from rating watch negative;

--$15,000,000 class A-2 Notes

downgraded to 'CC' from 'AAA', and removed from rating watch negative;

--$82,500,000 class B notes downgraded to 'C' from 'A-', and removed from rating watch negative.

Grenadier is a collateralized debt obligation (CDO) that closed July 21, 2003 and is managed by ACA Management, LLC. Grenadier's portfolio will be revolving until August 2008. Grenadier has a portfolio comprised primarily of subprime residential mortgage-backed securities (subprime RMBS), Alt-A RMBS bonds, structured finance (SF) CDOs and other structured finance assets. Subprime RMBS bonds of the 2005, 2006, and 2007 vintages account for approximately 12.60%, 8.10%, and 7.04% of the portfolio, respectively. Likewise, the SF CDO exposure includes SF CDO originated in 2005 (2.90%), 2006 (5.15%) and 2007 (2.56%). Alt-A RMBS bonds of the 2005, 2006 and 2007 vintages represent approximately 16.2% of the portfolio.

Fitch's rating actions reflect the significant collateral deterioration within the portfolio, specifically subprime RMBS, Alt-A RMBS, and SF CDOs with underlying exposure to subprime RMBS. Since Fitch's last review in September 2007, approximately 26.7% of the portfolio has been downgraded with 16.9% of the portfolio is currently on Rating Watch Negative. The negative credit migration is primarily attributable to credit deterioration in subprime RMBS bonds from the 2005, 2006 and 2007 vintages, coupled with significant downgrades in SF CDOs originated between 2005 and 2007. Further, the underlying portfolio currently contains 13.2% speculative grade securities of which 9.7% are rated 'CCC' or lower, which currently exceeds the credit enhancement available to the A-1 notes. The rating of the Commercial Paper Notes is based solely on the short-term rating of Citibank N.A., the liquidity provider.

The ratings of the Commercial Paper Notes, class A-1 notes, and class A-2 notes address the likelihood that investors will receive full and timely payments of interest, as per the governing documents, as well as the stated balance of principal by the legal final maturity date. The rating on the class B notes addresses the ultimate payment of principal only by the stated maturity date. Based on Fitch's projections of future par coverage and interest receipts, Fitch expects the class B notes to receive aggregate collections in excess of the rated principal balance under the related stress scenarios.

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

Fitch Ratings
Kevin Kendra, +1-212-908-0760 (New York)
Brian Vorderbrueggen, +1-212-908-9102 (New York)
Alina Pak, +1-312-368-3184 (Chicago)
Julian Dennison, +44 20 7862 4080
(Media Relations, London)
Sandro Scenga, +1-212-908-0278
(Media Relations, New York)