Fitch Downgrades 5 Classes of Notes of Independence V CDO, Ltd.; Resolves Rating Watch

NEW YORK--(BUSINESS WIRE)--Fitch downgrades the ratings of five classes of notes issued by Independence V CDO, Ltd. (Independence V). The following rating actions are effective immediately:

--$194,496,493 Class A-1 Notes downgraded to 'CCC' from 'BBB-' and removed from Rating Watch Negative;

--$84,000,000 Class A-2A Notes downgraded to 'C' from 'B' and removed from Rating Watch Negative;

--$15,000,000 Class A-2B Notes downgraded to 'C' from 'B' and removed from Rating Watch Negative;

--$56,400,000 Class B Notes downgraded to 'C' from 'CCC' and removed from Rating Watch Negative;

--$23,632,769 Class C Notes downgraded to 'C' from 'CC' and removed from Rating Watch Negative;

--$19,100,000 Series 1 Preference Shares remain at 'C';

--$5,500,000 Series 2 Preference Shares remain at 'C'.

Fitch's rating actions reflect the significant collateral deterioration within the portfolio, specifically subprime residential mortgage-backed securities (RMBS) and alternative-A (Alt-A) RMBS.

Independence V is a collateralized debt obligation (CDO) that closed on Feb. 25, 2004 and is managed by Declaration Management & Research LLC (Declaration). Currently, 62.6% of the $386 million portfolio is comprised of U.S. subprime RMBS, 13.3% consists of U.S. Alt-A RMBS and 10.1% consists of commercial mortgage-backed securities. The remaining 14.0% of the portfolio consists of prime RMBS, CDOs and other asset-backed securities.

Since the last review, approximately 46.9% of the portfolio has been downgraded with 8.6% of the portfolio currently on Rating Watch Negative. The credit deterioration has left 59.3% of the portfolio now rated below investment grade, including 50.9% of the portfolio rated 'CCC+' and below. This portion of collateral rated 'CCC+' and lower is in excess of the credit enhancement available to class A-1 notes.

Fitch has received notice of an event of default has occurred and is continuing. Fitch has also been notified by the trustee that it has been instructed by a majority of the controlling class to accelerate the transaction by declaring the principal of and accrued and unpaid interest on the notes to be immediately due and payable. As a result, the class A-1 notes shall be paid in full before any payments will be made to any class of holders subordinate to the class A-1 notes. Upon payment in full of the class A-1 notes, payments to the class A-2A notes will be made only on quarterly distribution dates. Fitch does not believe that the A-1 notes will receive full principal recovery and therefore the classes subordinate to the A-1 notes are not expected to receive any future interest or principal payments.

The ratings of the class A-1, A-2A, A-2B 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 legal final maturity date. The rating of the class C notes addresses the likelihood that investors will receive ultimate and compensating interest payments, as per the governing documents, as well as the stated balance of the principal by the legal final maturity date. The rating on the series 1 preference shares addresses the ultimate payment of a 2% coupon and the ultimate repayment of principal. The rating on the series 2 preference shares addresses the ultimate payment of a 2% internal rate of return (IRR) and the ultimate repayment of principal.

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.