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Rating Action:

Moody's downgrades notes issued by CB MezzCap Limited Partnership

22 Jul 2009

EUR 190.5 million of debt securities affected

Frankfurt, July 22, 2009 -- Moody's Investors Service announced today it has downgraded its ratings of five classes of notes issued by CB MezzCap Limited Partnership. This transaction is a static cash flow CDO backed by two types of profit participations ("Genussrechte") issued by German small and medium-sized corporates. The transaction has a scheduled maturity of January 2013.

The obligations in the portfolio have certain features of equity including subordination and linkage of payments to financial performance of the obligor such as interest deferral features and contingent coupon components. A portion of the obligations can be written down depending on financial performance of the obligor and may extend redemption up to the legal final maturity of the transaction which is 22 years after its scheduled maturity date. Obligations which have not redeemed at par plus accrued interest by the legal maturity of the transaction will expire and lead to a loss for CB MezzCap Limited Partnership. Moody's captures the additional risks associated with these obligations in its analysis.

According to Moody's, the rating actions taken on the notes are the result of credit deterioration of the underlying portfolio. The transaction has experienced EUR 48 million of insolvencies since closing in April 2006. The issuer has achieved proceeds of less than EUR 10 million from distressed sales with a par amount of EUR 15 million. The original portfolio was exposed to 35 profit participations, totalling EUR 199.5 million, out of which currently 27, totalling EUR 148.5 million, remain performing. This reduction includes the defaults and one early redemption at par.

In addition, the average credit quality of the remaining portfolio has deteriorated, as reflected in an increased average rating of the underlying obligors from Ba2 to Ba3. Furthermore, five obligors in an amount of EUR 24.5 million are flagged in the investor report as being in breach of contractual covenants. There is a high potential that the issuer will incur losses on these assets. Moody's has factored the significant uncertainty about the resolution of these assets in breach of contractual covenants into its analysis by means of alternative stress scenarios including treating these assets with a rating of Caa2.

Due to non-granularity of the portfolio and larger exposures to weak sectors various other stress scenarios were also run. These stress scenarios include notching a portion of the large exposures in the portfolio and stressing those assets belonging to sectors which are viewed as particularly vulnerable in the current economic environment such as Automobile, Buildings and Real Estate as well as Chemicals, Plastics and Rubber.

As a consequence of the defaults and credit deterioration the three most junior classes have become under-collateralized and the credit enhancement to the senior classes has severely declined. In reflection of the defaults and portfolio deterioration discussed above the cumulative amount of principal deficiency events has increased to EUR 51 million of which approximately EUR 19 million has been cleared from available funds. This amount and EUR 3 million from one redemption has been used to redeem Class A in part. Due to the reduced asset balance, the level of excess spread has considerably diminished and it is not expected that sufficient amounts of excess spread will be available going forward to reduce the principal deficiency ledger and thereby support the ratings of the senior classes.

Today's rating actions also reflect Moody's revised assumptions with respect to default probability and correlation as described in the press release dated February 4, 2009, titled "Moody's updates key assumptions for rating CLOs." The revised default probability assumptions have been applied to all assets in the underlying portfolio by notching the ratings to levels consistent with the revised assumptions. The performing assets which are not in breach of covenants have been notched down half a notch to reflect these assumption changes for default probability. Correlation levels between the assets have been increased to reflect Moody's revised correlation assumptions.

Moody's also notes that the collateral pool consists entirely of debt obligations issued by obligors whose credit quality has been assessed through estimates derived from the Moody's KMV RiskCalc model. These estimates have been mapped to Moody's alphanumeric scale. As such estimates do not carry credit indicators, such as ratings reviews and outlooks and lack cyclical adjustments they were stressed by one notch. The credit estimates are computed based on financial statement data of the borrowers predominantly dating from 2007 and 2008 and a further half notch stress for the time lag of this data has been applied.

Moody's initially analyzed and continues to monitor this transaction using primarily the methodology and its supplements for cash flow CLOs as described in Moody's Special Reports below:

--Moody's Approach to Rating Collateralized Loan Obligations (December 2008)

--Moody's Approach to Rating CDOs of SMEs in Europe (February 2007)

--Refining the ABS SME Approach (March 2009)

--Moody's RISKCALC™ for Private Companies: The German Model (November 2001)

These reports 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.

In addition to the quantitative factors that are explicitly modeled, qualitative factors are part of the rating committee considerations. These qualitative factors include the structural protections in each transaction, the recent deal performance in the current market environment, the legal environment, specific documentation features 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.

Today's rating actions are as follows:

CB MezzCap Limited Partnership:

(1) EUR 137,800,000 Class A Floating Rate Notes due 2013

Current Rating: Ba2

Prior Rating: Aaa, on review for possible downgrade

Prior Rating Date: 13 March 2009, Aaa placed on review for possible downgrade

(2) EUR 20,000,000 Class B Fixed Rate Notes due 2013

Current Rating: Ca

Prior Rating: A2, on review for possible downgrade

Prior Rating Date: 13 March 2009, A2 placed on review for possible downgrade

(3) EUR 10,500,000 Class C Floating Rate Notes due 2013

Current Rating: Ca

Prior Rating: Ba1, on review for possible downgrade

Prior Rating Date: 13 March 2009, Ba1 placed on review for possible downgrade

(4) EUR 14,500,000 Class D Fixed Rate Notes due 2013

Current Rating: C

Prior Rating: B2, on review for possible downgrade

Prior Rating Date: 13 March 2009, B2 placed on review for possible downgrade

(5) EUR 7,700,000 Class E Fixed Rate Notes due 2013

Current Rating: C

Prior Rating: Caa2, on review for possible downgrade

Prior Rating Date: 13 March 2009, Caa2 placed on review for possible downgrade

Frankfurt
Matthias Wahl
Associate Analyst
Structured Finance Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Madrid
Henry Charpentier
Managing Director
Structured Finance Group
Moody's Investors Service Espana, S.A.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's downgrades notes issued by CB MezzCap Limited Partnership
No Related Data.
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