Fitch Downgrades & Removes 5 Classes of C-BASS CBO XVIII Ltd. from Watch Negative

2008-08-22 22:53:01 -

- Fitch downgrades and removes from Rating Watch Negative five classes of notes issued by C-BASS CBO XVIII Ltd. (C-BASS XVIII). The following rating actions are effective immediately:

--$337,598,533 class A-1 notes to 'CCC' from 'BB-';

--$146,357,746 class A-2 notes to 'CCC' from 'BB-';

--$46,500,000 class B notes to 'CC' from 'B+';

--$12,700,000 class C notes

to 'C' from 'B-';

--$17,640,000 class D notes to 'C' from 'CCC'.

Fitch's rating actions reflect the significant collateral deterioration within the portfolio, specifically in subprime residential mortgage backed securities (RMBS).

C-BASS XVIII is a static cash structured finance (SF) collateralized debt obligation (CDO) that closed on March 13, 2007 and is managed by C-BASS Investment Management LLC. Presently 74% of the portfolio is comprised U.S. subprime RMBS, 14.34% Alternative-A RMBS, 4.43% Prime RMBS, 3.9% asset backed securities, 2.4% manufactured housing and 0.9% commercial mortgage backed securities.

Since Nov. 21, 2007, approximately 65.5% of the portfolio has been downgraded with 20.6% of the portfolio currently on Rating Watch Negative. Of the portfolio, 70% is now rated below investment grade, with 60.8% of the portfolio rated 'CCC+' or below. Overall, 77.1% of the assets in the portfolio now carry a rating below the rating assumed in Fitch's November 2007 review.

The collateral deterioration has caused each of the overcollateralization (OC) and interest coverage (IC) ratios to fall below 100% and fail their respective triggers. As of the trustee report dated July 31, 2008, the class A/B OC ratio was 76%, the class C OC ratio was 74.1% and the class D OC ratio was 71.6%. Pursuant to the Indenture, interest payments received from assets that are deemed to be defaulted based on their current rating, are treated as principal proceeds. As a result, on the June 2008 payment date, interest proceeds were insufficient to make current interest payments on the class A-1, A-2 and B notes and as a result principal proceeds were used. Principal proceeds remaining after paying unpaid interest to the class A-1, A-2 and B notes were then used to redeem the class A-1 and A-2 notes pro rata. The class C and D notes began deferring interest in December 2007 and interest payments are not expected to be reinstated. Going forward, Fitch expects only the class A-1 and A-2 notes to receive principal distributions. The downgrades to the rated notes reflect Fitch's updated view of the default risk associated with each of the notes.

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.

The ratings on the class A-1, A-2 and B 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 maturity date. The ratings on the class C, D and E notes address the likelihood that investors will receive ultimate and compensating interest payments, as per the governing documents, as well as the stated balance of principal by the maturity date.

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
Brian Vorderbrueggen, +1-212-908-9102
Kevin Kendra, +1-212-908-0760
Media Relations:
Sandro Scenga, +1-212-908-0278