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Rating Action:

Moody's downgrades ratings of notes issued by Taberna VIII and IX, REIT TRUP CDOs.

Global Credit Research - 07 May 2010

$1.2 billion of debt affected

New York, May 07, 2010 -- Moody's has downgraded 10 tranches across two REIT Trust Preferred (TRUP) CDOs. REIT TRUP CDOs are backed by pools of assets that consist of trust preferred securities or subordinated debt issued by real estate investment trusts ("REITs"), real estate operating companies, homebuilders, commercial mortgage backed securities, and real estate related loans. All of these sectors are still underperforming.

Moody's indicated that these rating actions are driven by an increase in the amount of defaulted and deferring securities in the collateral pools, further deterioration in the credit quality of the performing portfolio, significant payments to the hedge counterparty and the higher likelihood of declaration of an Event of Default (EOD) in the near future. In addition, Moody's notices an increase in the likelihood of interest payment default on the most senior tranches of one of these transactions.

Both transactions are negatively affected by a large pay-fixed, receive-floating interest rate swap since payments to the hedge counterparty are absorbing much of the interest proceeds in the deal. These significant payments have dramatically decreased interest proceeds available to pay interest on the senior notes, and are expected to result in actual payment defaults at least for one of these transactions.

The magnitude of the impact of these substantial payments to the hedge counterparty is demonstrated in the Senior Interest Coverage Test of Taberna IX. The senior interest coverage ratio is currently18.98%, as reported in the trustee report dated March 31, 2010. This value indicates a severe interest undercollateralization for this transaction. Moody's anticipates that the burden of making payments to the hedge counterparty over the remaining life of the hedge schedule will significantly reduce the amount of cash available to pay senior notes and put the ultimate payments of principal on these notes at significant risk. Given the current interest coverage ratio, we believe this transaction may have a high likelihood of declaring an Event of Default in the near future.

These transactions have experienced significant par loss in the collateral portfolios since the last rating action. According to the latest trustee reports dated March 31, 2010, the current senior overcollateralization ratios for Taberna VIII and Taberna IX are 133.72% and 113.14%, respectively. Both Taberna deals are experiencing overcollateralization test failures down the capital structure due to a material increase in the actual and assumed defaults. Compared to the rating actions taken in April 2009, Taberna VIII and Taberna IX experienced a significant increase in the assumed defaulted amount [1] from ($25 mm to $107 mm) and from ($50 mm to $201 mm), respectively. The assumed WARF [2] of 6007 for Taberna VIII and 4965 for Taberna IX also indicates that the credit quality of the remaining performing collateral has deteriorated considerably since the last rating action. The rating actions taken today also reflect the weakened portfolio collateralizing these two transactions.

Most of the notes in the affected transactions were placed on watch for possible downgrade in March 2010 as a result of the continued weak economic conditions in the real estate sector, increased expectations of asset defaults and interest deferrals, and reduced recovery prospects for mortgage REITs. Since then, the credit fundamentals for the REITs sector continue to be challenging and Moody's expects that it will remain so at least for the remainder of the year.

Today's rating actions are as follows:

Taberna Preferred Funding VIII, Ltd.

Current Assumed WARF [1]: 6007

Current Assumed Defaulted Amount [2]: $107,084,653.89

U.S.$160,000,000 Class A-1A First Priority Delayed Draw Senior Secured Floating Rate Notes Due 2037 (current balance of $152,758,226.54); Downgraded to B3, previously on November 19, 2009 Ba1 Placed Under Review for Possible Downgrade

U.S.$215,000,000 Class A-1B First Priority Senior Secured Floating Rate Notes Due 2037(current balance of $205,268,868.42); Downgraded to B3, previously on November 19, 2009 Ba1 Placed Under Review for Possible Downgrade

U.S.$120,000,000 Class A-2 Second Priority Senior Secured Floating Rate Notes Due 2037; Downgraded to Caa3, previously on November 19, 2009 Ba3 Placed Under Review for Possible Downgrade

U.S.$40,000,000 Class C Deferrable Fourth Priority Secured Floating Rate Notes Due 2037 (current balance of $40,169,392.46); Downgraded to C, previously on April 9, 2009 Downgraded to Ca

Taberna Preferred Funding IX, Ltd.

Current Assumed WARF [1]: 4965

Current Assumed Defaulted Amount [2]: $201,024,983.81

U.S. $275,000,000 Class A-1LA Floating Rate Notes Due May 2038 Notes (current balance of $267,205,231.36), Downgraded to Caa2; previously on November 19, 2009 Ba1 Placed Under Review for Possible Downgrade;

U.S. $100,000,000 Class A 1LAD Delayed Draw Floating Rate Notes Due May 2038 Notes (current balance of $97,165,538.68), Downgraded to Caa2; previously on November 19, 2009 Ba1 Placed Under Review for Possible Downgrade;

U.S. $116,000,000 Class A 1LB Floating Rate Notes Due May 2038 Notes, Downgraded to Caa3; previously on April 9, 2009 Downgraded to B1;

U.S. $25,000,000 Class A-2LA Floating Rate Notes Due May 2038 Notes, Downgraded to Ca; previously on April 9, 2009 Downgraded to B3;

U.S. $53,000,000 Class A-2LB Deferrable Floating Rate Notes Due May 2038 Notes (current balance of $53,206,976.72), Downgraded to C; previously on April 9, 2009 Downgraded to Ca;

U.S. $20,000,000 Class A-3LA Deferrable Floating Rate Notes Due May 2038 Notes (current balance of $20,359,272.92), Downgraded to C; previously on April 9, 2009 Downgraded to Ca.

The principal methodologies used in rating and monitoring these transactions is described in the following publications, which can be found at www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab:

Moody's Approach to Rating U.S. REIT CDOs, April 2010

Updated Approach to the Usage of Credit Estimates in Rated Transactions

Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating Methodologies sub-directory on Moody's website. In addition, Moody's publishes a weekly summary of structured finance credit, ratings and methodologies, available to all registered users of our website, at www.moodys.com/SFQuickCheck.

_____________________________________________________________________________________________

[1] - Moody's assumes any security currently defaulted, deferring payment, or with a Moody's public rating or credit estimate of Ca or C to be defaulted with a zero recovery.

[2] - The weighted average rating factor ("WARF") of the performing collateral is calculated by using updated Moody's public ratings or credit estimates provided by Moody's analysts covering each particular sector of the assets included in the portfolio. For names with no updated credit estimates, Moody's assumes a conservative rating factor, as described in "Moody's Approach to Rating U.S. REIT CDOs," April 2010. Moody's analysis of non-publicly rated assets also incorporates tests outlined in "Updated Approach to the Usage of Credit Estimates in Rated Transactions," October 2009. For names publicly rated by Moody's, the public ratings were used, adjusted one notch downward for a negative outlook and two notches downward for review for possible downgrade.

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

New York
Rachid Ouzidane
Asst Vice President - Analyst
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's downgrades ratings of notes issued by Taberna VIII and IX, REIT TRUP CDOs.
No Related Data.
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