Fitch Ratings has downgraded and subsequently withdrawn four classes and affirmed 72 classes of notes from 15 structured finance collateralized debt obligations (SF CDOs) with exposure to various structured finance assets.

KEY RATING DRIVERS

Sixty-three classes rated 'Csf' are currently undercollateralized or have credit enhancement levels exceeded by expected losses from the distressed collateral (rated 'CCsf' and lower) in their respective portfolios. For these classes, the probability of default was evaluated without factoring potential losses from the performing assets. In the absence of mitigating factors, default for these notes at or prior to maturity continues to appear inevitable.

The certificates issued by Blue Heron Funding VII, Ltd. are affirmed at 'AAAsf'/Outlook Stable. The principal of the certificates is protected by zero coupon bonds issued by the Resolution Funding Corporation (REFCO), a U.S. government sponsored agency, which are scheduled to mature in April 2030. According to the transaction documents, no party other than the certificate holders have claim against this protection asset.

Seven classes, affirmed at 'Dsf', are non-deferrable and continue to experience interest payment shortfalls. The class A notes of Crystal River CDO 2005-1, Ltd. had their defaulted interest paid off in December 2014 and have been timely on their interest payments since then. However, given the highly concentrated nature of the portfolio, with only four assets remaining, and reliance on principal proceeds to pay interest due on the timely classes, re-occurrence of payment default remains a strong possibility for the class A notes. As such, these notes have been affirmed at 'Dsf'.

The downgrades of the four classes of notes issued by Commodore CDO II, Ltd. (Commodore II) are attributed to the inability of the final sales proceeds to cover the remaining balances of the outstanding notes. Since no assets remain in the portfolio, these notes are not expected to be paid in full at maturity. Therefore, all classes have been downgraded to 'Dsf'. Fitch is subsequently withdrawing Commodore II's ratings as the notes were cancelled.

RATING SENSITIVITIES

Classes already rated 'Csf' have limited sensitivity to further negative migration given their highly distressed rating levels. However, there is potential for non-deferrable classes to be downgraded to 'Dsf' should they experience any interest payment shortfalls.

This review was conducted under the framework described in the reports 'Global Structured Finance Rating Criteria' and 'Global Surveillance Criteria for Structured Finance CDOs'. None of the transactions have been analysed under a cash flow model framework, as the effect of structural features and excess spread available to amortize the notes were determined to be minimal. The individual rating actions are detailed in the report 'Fitch Takes Various Rating Actions on 15 SF CDOs from 2000-2005 Vintages', released and available at 'www.fitchratings.com' by performing a title search or by using the link.

DUE DILIGENCE USAGE

No third party due diligence was reviewed in relation to this rating action.

Additional information is available at www.fitchratings.com.

Sources of Information:

The sources of information used to assess these ratings were periodic trustee reports and the public domain.

Fitch Takes Various Rating Actions on 15 SF CDOs from 2000-2005 Vintages

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=876987

Applicable Criteria

Counterparty Criteria for Structured Finance and Covered Bonds (pub. 14 May 2014)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=744158

Global Structured Finance Rating Criteria (pub. 06 Jul 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=867952

Global Surveillance Criteria for Structured Finance CDOs (pub. 13 Jul 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=867800

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=998274

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=998274

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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