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Rating Action:

Moody's Investors Service announced today that it has downgraded the rating of two classes of notes issued by MKP CBO III Ltd.

31 Jul 2009

New York, July 31, 2009 -- Moody's Investors Service announced today that it has downgraded the rating of two classes of notes issued by MKP CBO III Ltd. The notes affected by today's rating action are as follows:

U.S. $50,000,000 Class A-2 Second Priority Senior Secured Floating Rate Notes Due 2039, Downgraded to Ba1; previously on 3/18/2009 Downgraded to Baa1.

U.S. $45,000,000 Class B Third Priority Senior Secured Floating Rate Notes due 2039 Downgraded to B1; previously on 3/18/2009 Downgraded to Ba2.

MKP CBO III, Ltd. is a collateralized debt obligation backed primarily by a portfolio of residential mortgage backed securities ("RMBS") and other types of assets backed securities ("ABS").

Today's actions take into consideration the occurrence on July 24, 2009, as reported by the Trustee, of an Event of Default described in Section 5.1(i) of the Indenture dated April 7, 2004. The Event of Default was declared because of the failure, on the most recent Measurement Date, of the Class A/B Overcollateralization Ratio to equal to or be greater than 100%. As provided in Article V of the Indenture during the occurrence and continuance of an Event of Default, certain parties to the transaction may be entitled to direct the Trustee to take particular actions with respect to the Collateral and the Notes, including the sale and liquidation of the assets. The severity of losses of certain tranches may be different depending on the timing and outcome of a liquidation.

The rating downgrade actions today also reflect the continuous deterioration in the credit quality of the underlying portfolio. Since Moody's last review in March the trustee reported that the Class A/B OC ratio has fallen from 108.23% to below 100% and the WARF has increased from 770 to 949.

Moody's explained that in addition to the quantitative factors that are explicitly modeled, qualitative factors are part of the Moody's rating committee considerations. These qualitative factors include but are not limited to the structural protections in the transaction, the recent performance of the transaction in the current market environment, how legal risks and issues are addressed in transaction documentation, the collateral manager's track record, and the potential for selection bias in the portfolio. All information available to rating committees, including macroeconomic forecasts, input from other Moody's analytical groups, market factors, and judgments regarding the nature and severity of credit stress on the transactions, may influence the final rating decision

Moody's continues to monitor this transaction using primarily the methodology and its supplements for ABS CDOs as described in Moody's Special Report below:

- Moody's Approach to Rating SF CDOs (March 2009)

This report can be found at www.moodys.com in the Credit Policy & Methodologies directory, in the Ratings Methodologies subdirectory. Other methodologies and factors that may have been considered in the process of rating this issue can also be found in the Credit Policy & Methodologies directory.

New York
Stephen Lioce
Senior Vice President
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Ainat Koller
Senior Associate
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Investors Service announced today that it has downgraded the rating of two classes of notes issued by MKP CBO III Ltd.
No Related Data.
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