Fitch Downgrades 7 Classes of Jupiter High Grade CDO VII, Ltd.

2008-08-20 02:11:01 -

- Fitch has downgraded and removed from Rating Watch Negative seven classes of notes issued by Jupiter High Grade CDO VII, Ltd. and Jupiter High-Grade CDO VII, Inc. (Jupiter VII). These rating actions are the result of Fitch's review process and are effective immediately:

--$1,032,814,556 class A-1 notes downgraded to 'CC' from 'BBB';

--$150,000,000 class A-2 notes downgraded to 'C' from 'BB-';

--$150,000,000 class A-3 notes downgraded to 'C' from 'B';

--$80,000,000 class A-4 notes downgraded to 'C' from 'B-';

--$20,000,000 class A-5 notes downgraded to 'C' from 'CCC';

--$21,203,165 class B notes downgraded to 'C' from 'CC';

--$10,766,457 class C notes downgraded to 'C' from 'CC'.

Fitch's rating actions reflect the collateral deterioration within the portfolio, specifically subprime residential mortgage backed securities (RMBS), and structured finance (SF) collateralized debt obligations (CDO) with underlying exposure to subprime RMBS.

Jupiter VII is a cash CDO that closed on August 02, 2007 and is managed by Maxim Advisory LLC (Maxim Advisory). On November 30, 2007, Jupiter VII entered an Event of Default due to a breach of the Class A Principal Coverage test. On February 06, 2008, the majority of noteholders voted to terminate the reinvestment period and to accelerate the transaction.

Presently, 46.1% of the portfolio is comprised of 2006 and 2007 vintage U.S. subprime RMBS, 8% is comprised of 2005, 2006, and 2007 vintage U.S. Alternative-A RMBS, and 23.5% consists of 2006, and 2007 vintage U.S. SF CDOs. Additionally, 15.6% of the portfolio is comprised of prime RMBS and a small percentage of the portfolio consists of commercial mortgage-backed securities and commercial asset-backed securities.

Since the last rating action in November 2007, 80% of the portfolio has been downgraded with an additional 34.8% of the portfolio currently on Rating Watch Negative. Approximately 74% of the portfolio is now rated below investment grade, of which 66% is rated 'CCC+' or below. As per the latest trustee report dated June 30, 2008, defaulted and deferred interest payment in kind securities constitute 37.5%, or $562.8 million, of the portfolio total. The negative credit migration experienced since the last review has resulted in the Weighted Average Rating Factor deteriorating to 'BB-/B+' as of the last trustee report from 'AA/AA-' during the last review, breaching its covenant of 1.28 ('AA-/A+').

The collateral deterioration has caused each of the overcollateralization (OC) ratios to fall below 100% and fail their respective test levels. As of the latest trustee report, the class A OC ratio was 50.45%, the class B OC ratio was 49.71%, and the class C OC ratio was 49.34% versus triggers of 101.0%, 100.8%, and 100.8%, respectively. Class A-1 is receiving interest payments and all other interest and principal proceeds are then used to redeem class A-1 principal. Fitch expects class A-1 to continue to receive timely interest payments, however, projects only partial recovery of the principal. Classes A-2, A-3, A-4, A-5, B, and C are currently not receiving interest or principal payments. Fitch does not expect these classes to receive any payments in the future.

The ratings of the class A-1, A-2, A-3, A-4, and A-5 notes address the timely receipt of scheduled interest payments and the ultimate receipt of principal by the legal final maturity date as per the transaction's governing documents. The ratings of the class B and C notes address the ultimate receipt of interest payments and the ultimate receipt of principal by the legal final maturity date 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 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

Fitch Ratings
Brian Vorderbrueggen, +1-212-908-9102 (New York)
Alina Pak, +1-312-368-3184 (Chicago)
Sandro Scenga, +1-212-908-0278
(Media Relations, New York)