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Rating Action:

Moody's downgrades the ratings of four TRUP CDOs

Global Credit Research - 13 Jul 2010

Approximately US$ 1.25 billion debt affected

New York, July 13, 2010 -- Moody's Investors Service announced today that it has downgraded the ratings of the notes from four Trup CDOs: Alesco Preferred Funding I, Ltd., Trapeza CDO III, LLC, Trapeza CDO VI, Ltd. and Trapeza CDO XII, Ltd.

According to Moody's, the rating actions taken on the notes are mainly the result of significant increase in the defaults and deferrals of the trust preferred securities held in their portfolios. This par loss has resulted in loss of overcollateralization for the tranches affected and an increase of their expected losses. Since the last rating action, the assumed defaulted amounts in these deals have increased significantly, with a large portion of transactions experiencing an increase of the assumed defaulted amount of about or more than 100% with the exception of Trapeza CDO III, LLC that experienced an increase of about 50%.

Moody's also gave consideration to the Event of Default analysis for Trapeza CDO III, LLC even though Trapeza CDO III, LLC has not declared an Event of Default to date. However, Moody's notes that, according to the trustee report dated June 30, 2010, the current Class A/B Overcollateralization level is 104.86% and the transaction would trip an Event of Default if this level were to fall below 100%. Since Moody's doesn't give any credit (zero recovery) to the assumed defaulted assets in the calculation of the overcollateralization test, the resulting modeled Class A/B Overcollateralization level is below 100%. Therefore, additional modeling scenarios were considered in this case assuming that acceleration has been declared.

The assumed defaulted amounts and model WARF are provided for each transaction below. The credit deterioration exhibited by these portfolios is a reflection of the continued pressure in the banking sector as the number of bank failures and interest deferrals of trust preferred securities issued by banks has continued to increase. According to FDIC data, 90 U.S. banks have failed to date, while 140 banks failed in 2009, as compared to 25 in all of 2008. In Moody's opinion, the banking sector outlook remains negative.

The portfolios of these CDOs are mainly composed of trust preferred securities issued by small to medium sized U.S. community bank and insurance companies that are generally not publicly rated by Moody's. To evaluate their credit quality, Moody's derives credit scores for these non-publicly rated assets and evaluates the sensitivity of the rated transactions to their volatility, as described in Moody's Rating Methodology "Updated Approach to the usage of Credit Estimates in rated Transactions", October 2009.

Today's rating actions are listed below:

Issuer: ALESCO Preferred Funding I, Ltd.

U.S.$149,000,000 Class A-1 First Priority Senior Secured Floating Rate Notes Due 2033 (current balance of $118,943,978), Downgraded to Baa2; previously on March 27, 2009 Downgraded to Aa3;

U.S.$66,000,000 Class A-2 Second Priority Senior Secured Floating Rate Notes Due 2033, Downgraded to Ba2; previously on March 27, 2009 Downgraded to Ba1;

U.S.$56,700,000 Class B-1 Mezzanine Secured Floating Rate Notes Due 2033 (current balance of $57,588,861.24), Downgraded to C; previously on March 27, 2009 Downgraded to Ca;

U.S.$45,000,000 Class B-2 Mezzanine Secured Fixed/Floating Rate Notes Due 2033 (current balance of $45,705,445.42), Downgraded to C; previously on March 27, 2009 Downgraded to Ca.

Issuer: Trapeza CDO III, LLC

U.S. $108,500,000 Class A-1A First Priority Senior Secured Floating Rate Notes (current balance of $74,086,281.1), Downgraded to Baa2; previously on March 27, 2009 Confirmed at Aa3;

U.S. $71,500,000 Class A-1B First Priority Senior Secured Fixed Rate Notes, Downgraded to B1; previously on March 27, 2009 Downgraded to Baa3;

U.S. $25,000,000 Class B Second Priority Senior Secured Floating Rate Notes, Downgraded to Caa1; previously on March 27, 2009 Downgraded to B1;

U.S. $31,250,000 Class C-1 Third Priority Secured Fixed Rate Notes (current balance of $33,010,519.45), Downgraded to C; previously on November 12, 2008 Downgraded to Ca;

U.S. $31,250,000 Class C-2 Third Priority Senior Secured Fixed/Floating Rate Notes (current balance of $33,010,519.45), Downgraded to C; previously on November 12, 2008 Downgraded to Ca.

Issuer: Trapeza CDO VI, Ltd.

U.S.$155,000,000 Class A-1A First Priority Senior Secured Floating Rate Notes Due 2034 (current balance of $138,621,832.86) Downgraded to A1; previously on March 27, 2009 Downgraded to Aa3;

U.S.$21,000,000 Class A-1B Second Priority Senior Secured Floating Rate Notes Due 2034, Downgraded to Baa3; previously on March 27, 2009 Downgraded to Baa1;

U.S.$59,350,000 Class A-2 Third Priority Senior Secured Floating Rate Notes Due 2034, Downgraded to B1; previously on March 27, 2009 Downgraded to Ba3.

Issuer: Trapeza CDO XII, Ltd.

U.S. $250,000,000 Class A-1 First Priority Senior Secured Floating Rate Notes Due 2042 (current balance of $238,345,234.58), Downgraded to Baa3; previously on March 27, 2009 Downgraded to A3;

U.S. $68,000,000 Class A-2 Second Priority Senior Secured Floating Rate Notes Due 2042, Downgraded to Caa1; previously on March 27, 2009 Downgraded to Ba1;

U.S. $19,000,000 Class A-3 Third Priority Senior Secured Floating Rate Notes Due2042, Downgraded to Caa3; previously on March 27, 2009 Downgraded to B1;

U.S. $49,000,000 Class B Fourth Priority Secured Deferrable Floating Rate Notes Due 2042 (current balance of $49,348,709.97), Downgraded to Ca; previously on March 27, 2009 Downgraded to Caa3;

U.S. $38,000,000 Class C-1 Fifth Priority Secured Deferrable Floating Rate Notes Due 2042 (current balance of $38,667,180.84), Downgraded to C; previously on March 27, 2009 Downgraded to Ca;

U.S. $9,000,000 Class C-2 Fifth Priority Secured Deferrable Fixed/Floating Rate Notes Due 2042 (current balance of $9,601,398.27), Downgraded to C; previously on March 27, 2009 Downgraded to Ca.

Below are the basic deal information and assumptions made in Moody's rating analysis today:

Issuer: ALESCO Preferred Funding I, Ltd.

Issued in 9/2003 and maturing on 10/2033

Current Model WARF [1]: 1735

Current Assumed Defaulted Amount: $106,500,000

Model WARF for March 2009 rating actions [2]: 1624

Assumed Defaulted Amount for March 2009 rating actions: $52,500,000

Issuer: Trapeza CDO III, LLC

Issued in 6/2003 and maturing on 7/2033

Current Model WARF [1]: 1941

Current Assumed Defaulted Amount: $95,585,000

Model WARF for March 2009 rating actions [2]: 1748

Assumed Defaulted Amount for March 2009 rating actions: $63,170,000

Issuer: Trapeza CDO VI, Ltd.

Issued in 4/2004 and maturing on 11/2034

Current Model WARF [1]: 1732

Current Assumed Defaulted Amount: $96,000,000

Model WARF for March 2009 rating actions [2]: 1647

Assumed Defaulted Amount for March 2009 rating actions: $48,500,000

Issuer: Trapeza CDO XII, Ltd.

Issued in 3/2007 and maturing on 4/2042

Current Model WARF [1]: 2320

Current Assumed Defaulted Amount: $163,955,252.22

Model WARF for March 2009 rating actions [2]: 1824

Assumed Defaulted Amount for March 2009 rating actions: $39,750,000

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

Moody's Approach to Rating U.S. Bank Trust Preferred Security CDOs, June 2010.

Moody's Approach to Rating Insurance Trust Preferred Security CDOs, June 2010.

Updated Approach to the Usage of Credit Estimates in Rated Transactions, October 2009.

Other methodologies and factors that may have been considered in the process of rating these issuers 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] The model WARF assumes a 25% WARF stress and credit estimate stress for all transactions.

[2]The model WARF for all previous rating actions of these deals includes a 25% WARF stress but no credit estimate stresses for all transactions.

New York
Jian Hu
MD - Structured Finance
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 the ratings of four TRUP CDOs
No Related Data.
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