Fitch Downgrades $770.4MM of Independence VI CDO; Resolves Negative Watch

2008-07-11 23:10:07 -

- Fitch Ratings has downgraded six classes of notes issued by Independence VI CDO, Ltd. and Independence VI CDO, Inc. (collectively, Independence VI). Fitch has also removed all six classes of notes from Rating Watch Negative. The following rating actions are effective immediately:

--$503,099,409 class A-1 notes to 'B' from 'BBB-';

--$85,688,581 class A-2 notes to 'CC' from

'BB+';

--$83,421,687 class B notes to 'CC' from 'BB';

--$14,627,113 class C notes to 'C' from 'B+';

--$19,545,981 class D notes to 'C' from 'B-';

--$17,502,536 class E notes to 'C' from 'CCC'.

Fitch originally placed all classes on Rating Watch Negative on Feb. 27, 2008.

Independence VI is a cash flow structured finance (SF) collateralized debt obligation (CDO) that closed on June 30, 2005 and is managed by Declaration Management & Research LLC. The portfolio is comprised primarily of U.S. subprime residential mortgage-backed securities (RMBS) (75.1%), Alternative-A (Alt-A) RMBS (6.8%) and SF CDOs (5.6%). Subprime RMBS bonds of the 2005, 2006 and 2007 vintages account for approximately 48.8% 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 November 2007, approximately 63.5% of the portfolio has been downgraded, with 7% of the portfolio currently on Rating Watch Negative. This credit deterioration includes 53.8% of the portfolio that now carries a rating below the rating Fitch assumed in the November 2007 review. Assets rated below investment grade currently represent 59.5% of the portfolio, and 29.5% of the portfolio is now rated 'CCC+' or below.

The collateral deterioration has caused each of the overcollateralization (OC) tests to fall below 100% and fail their respective triggers. As of the trustee report dated June 8, 2008, the class A/B OC ratio was 90.8%, the class C OC ratio was 88.9%, the class D OC ratio was 86.4% and the class E OC ratio was 84.3%. Due to these OC test failures, cash flows have been diverted to pay down the class A-1 notes, and payment of interest to the class C, class D and class E notes has been made in kind by writing up the principal balance of each class by the amount of interest owed.

As of April 29, 2008, the net outstanding portfolio collateral balance was less than the aggregate outstanding amount of the class A and class B notes, causing an Event of Default (EOD) to occur. As a remedy to the EOD, the majority of holders of the class A notes may declare the notes immediately due and payable. In the event of a liquidation of the collateral, Fitch expects that the resulting proceeds will not be enough to return full principal on the class A-1, A-2 and B notes, and the remaining class C, D and E notes are expected to receive zero principal returns.

The ratings on the class A-1, A-2 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 ratings on classes C, D and E address the ultimate receipt of interest payments and ultimate receipt of principal as per the transaction's governing documents. The ratings are based upon the capital structure of the transaction, the quality of the collateral, and the protections incorporated within the structure.

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, New York
Kevin Kendra, 212-908-0760
Brian Vorderbrueggen, 212-908-9102
Alina Pak, 312-368-3184, Chicago
or
Media Relations:
Sandro Scenga, 212-908-0278