Fitch Downgrades 3 & Affirms 3 Classes of Trainer Wortham First Republic CBO III

CHICAGO--(BUSINESS WIRE)--Fitch Ratings has downgraded three and affirmed three classes of notes issued by Trainer Wortham First Republic CBO III (Trainer Wortham III) as a result of continued credit deterioration in the portfolio since Fitch's last rating action in August 2008. Approximately 64.1% of the portfolio has been downgraded since the last review. The details of the rating action follow at the end of this press release.

The downgrades to the portfolio have left approximately 62.3% of the portfolio with a Fitch derived rating below investment grade and 48.5% with a rating in the 'CCC' rating category or lower, compared to 45.8% and 32.7%, respectively, at last review. Defaulted securities, as defined in the transaction's governing documents, now comprise 22.8% of the portfolio, compared to 17.4% at last review.

While the classes A-1, A-2, and B notes are still receiving timely interest distributions, Fitch believes that default is a real possibility for the class A-1 notes and inevitable for the classes A-2 and B notes.

This review was conducted under the framework described in the report 'Global Rating Criteria for Structured Finance CDOs' using the Portfolio Credit Model (PCM) for projecting future default levels for the underlying portfolio. Based on this analysis, the credit enhancement available to the class A-1 notes is generally consistent with the PCM rating loss rate for the 'CCC' rating category.

Due to the significant collateral deterioration, credit enhancement levels available to all other classes of notes are exceeded by even the 'CCC' rating loss rate, the lowest rating level loss projected by PCM. For these classes, Fitch compared the respective credit enhancement levels to the amount of underlying assets considered distressed (rated 'CCC' and lower). Given the high probability of default of these assets and the expected low recoveries upon default, classes A-2, and B were downgraded to 'C' and classes C, D, and preferred shares were affirmed at 'C'.

Trainer Wortham III is a structured finance collateralized debt obligation (SF CDO) that closed on Feb. 19, 2003 and is monitored by First Republic Investment Management. The portfolio is composed of RMBS (91.2%), CDOs (6.8%), commercial mortgage-backed securities (1.3%), and asset-backed securities (0.7%).

Fitch has downgraded and affirmed ratings as indicated:

--$76,588,260 class A-1 notes downgraded to 'CCC' from 'BBB-';

--$60,750,000 class A-2 notes downgraded to 'C' from 'CCC';

--$9,000,000 class B notes downgraded to 'C' from 'CC';

--$8,512,894 class C notes affirmed at 'C';

--$14,856,973 class D notes affirmed at 'C';

--$16,000,000 Preferred Shares affirmed at 'C'.

These rating actions reflect the application of Fitch's current criteria which are available at 'www.fitchratings.com' and specifically include the following reports:

--'Global Structured Finance Rating Criteria' (Sept. 30, 2009);

--'Global Rating Criteria for Structured Finance CDOs' (Dec. 16, 2008);

Additional information is available at www.fitchratings.com.

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