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Rating Action:

Moody's takes rating actions on certain Structured Investment Vehicles following its latest review of the sector - Approximately US$36 billion of debt securities affected or 11% of total SIV debt outstanding

07 Nov 2007
Moody's takes rating actions on certain Structured Investment Vehicles following its latest review of the sector - Approximately US$36 billion of debt securities affected or 11% of total SIV debt outstanding

Actions reflect continued decline in market value of SIV portfolios as they face continuing liquidity crisis

London, 07 November 2007 -- Moody's Investors Service announced today that it has substantially completed another review of the Structured Investment Vehicle (SIV) sector following continued market value declines of SIV portfolios since our most recent review completed on September 5th of this year. As a result of this review, Moody's has confirmed the short term ratings of the senior debt programmes of Kestrel Funding PLC and Kestrel Funding LLC (which hold approximately US$3 billion of debt securities) that were on review for possible downgrade. Moody's also downgraded, or placed on review for possible downgrade, the ratings of 28 debt programmes of 16 SIVs (which hold approximately US$33 billion of debt securities) as described below.

For those programmes that have been placed on review, Moody's will, amongst other considerations, evaluate the status of the corresponding SIV, paying particular attention to any restructuring or alternative funding initiatives implemented by the vehicle. This evaluation is expected to be completed within two weeks.

Today's rating actions follow previous actions taken on September 5th in which Moody's downgraded, or placed on review for possible downgrade, various SIV debt programmes. Since then, Moody's has continued to closely monitor SIV ratings, taking actions on individual vehicles as warranted. In our monitoring of SIV ratings, we pay particular attention to the evolving liquidity situation of each vehicle, changes in portfolio market value, and the prospects for restructuring where needed.

Rationale for Rating Actions

The ongoing liquidity crisis facing SIVs has continued almost unabated since September 5th, when Moody's completed its last review of the sector. The inability of some of the SIVs to issue sufficient Asset Backed Commercial Paper (ABCP) or Medium Term Notes (MTNs) over a prolonged period has led to the crystallisation of mark-to-market losses in some cases and the potential for such losses to be realised in others.

In this latest review, Moody's employed its updated methodology as announced on September 5th. The methodology update reflects the unprecedented volatility in the market value of the securities held by SIVs For each SIV, we model expected loss using a stressed volatility for the distribution of market asset prices based primarily on declines observed since July 2007. With this stress, only those tranches of the ABCP and MTNs issued by SIVs that can sustain an additional price decline of two times the decline observed in this period will retain Aaa/Prime-1 ratings.

For example, if the net asset value of a SIV (measured as the difference between portfolio market value and the notional value of senior liabilities, expressed as a percentage of paid-in capital) was par in July and declined 30% to a current value of 70%, we assume that the probability of a deterioration in net asset value by an additional 60% of par to levels below 10% is negligible and is therefore consistent with a Aaa probability of default. Our analysis therefore assumes that all asset prices move in a highly correlated manner. In addition, for issuers that may need to sell assets to meet liabilities coming due before year-end, we reduced our estimate of current net asset value of such SIVs by 10-15 percentage points to reflect uncertainty in the ability to execute trades at current market quotes.

In modelling both senior and capital notes, Moody's now assumes that each vehicle is effectively in a wind-down mode (which means that, for purposes or our analysis, we assume the SIV would be liquidating its assets at distressed levels in order to satisfy its security-holders) given continued difficulties in issuing new senior debt or refinancing maturing debt. Furthermore, asset liquidations have led in some cases to loss crystallisations that may be borne by capital note investors. Moody's review of capital note ratings will therefore focus on potential losses to the notes in the course of this process. The review will also consider various qualitative support factors provided by each vehicle's sponsor or other market participants. Such support factors include the purchase of senior debt by a sponsor, transactions in repurchase agreements, or arrangements for the restructuring of a vehicle.

Conclusions and Outlook

Moody's has taken certain rating actions as a result of deteriorating credit and other market conditions. It seems clear that the situation has not yet stabilised and further rating actions could follow. As with previous actions, the rating actions Moody's has taken today in response to the current situation are not a result of any credit problems in the assets held by SIVs, but rather a reflection of the continued deterioration in market value of SIV portfolios combined with the liquidity crisis.

SIV senior note ratings continue to be vulnerable to the unprecedented large and sustained declines in portfolio value combined with a prolonged inability to refinance maturing debt. SIV capital note ratings will be affected primarily by further deterioration in the market value of the portfolio. The risk of realised losses on capital and even senior notes is likely to increase significantly if the SIV is placed in a position where it must sell assets rapidly in a "fire sale."

Moody's will complete its rating review on the securities noted below and continue to monitor the sector extremely closely.

Rating Actions

Moody's has taken the following rating actions:

Victoria Finance Ltd and Victoria Finance LLC (US$11.1 billion of debt securities affected)

Euro and US Commercial Paper Programmes

New Rating: Prime-1 on review for possible downgrade

Previous Rating: Prime-1

Euro and US Medium Term Note Programmes

New Rating: Aaa/Prime-1 on review for possible downgrade

Previous Rating: Aaa/Prime-1

Capital Note Programme

New Rating: Caa3

Previous Rating: Baa2 on review for possible downgrade

The placement on review for possible downgrade of the ratings assigned to the CP and MTN programmes reflects the deterioration of the market value of Victoria Finance's asset portfolio. Moody's review will focus on the potential for further market value deterioration and the effects of certain restructuring proposals that are currently under consideration by the vehicle. The downgrade of Victoria Finance's capital notes reflects the impact of crystallised losses following asset sales.

Harrier Finance Funding Limited and Harrier Finance Funding (US) LLC (US$11.3 billion of debt securities affected)

Euro and US Commercial Paper Programmes:

New Rating: Prime-1 on review for possible downgrade

Previous Rating: Prime-1

Euro and US Medium Term Note Programmes

New Rating: Aaa/Prime-1 on review for possible downgrade

Previous Rating: Aaa/Prime-1

Income Note Programme

New Rating: Caa2

Previous Rating: Baa2 on review for possible downgrade

The placement on review for possible downgrade of the ratings assigned to the CP and MTN programmes reflects the deterioration of the market value of Harrier Finance's asset portfolio. Moody's review will focus on the potential for further market value deterioration and the effects of certain restructuring proposals that are currently under consideration by the vehicle. The downgrade of Harrier Finance's capital notes reflects the impact of crystallised losses following asset sales.

Kestrel Funding PLC and Kestrel Funding LLC (US$3.3 billion of debt securities affected)

Euro and US Commercial Paper Programmes

New Rating: Prime-1

Previous Rating: Prime-1 on review for possible downgrade

Euro and US Medium Term Note Programmes

New Rating: Aaa on review for possible downgrade and Prime-1

Previous Rating: Aaa/Prime-1 on review for possible downgrade

Income Note Programme

New Rating: Caa3

Previous Rating: Baa2 on review for possible downgrade

The confirmation on the short-term, Prime-1 rating of the Euro CP, US CP, Euro MTN and US MTN programmes of Kestrel Funding follows a restructuring of the vehicle. In this restructuring, WestLB AG (A1/P-1) effectively guarantees the repayment of Commercial Paper and Medium Term notes as they fall due. The long-term rating of the MTN programmes remains on review for possible downgrade to allow further assessment of the combined support provided by WestLB's A1 rating and the long-term rating of the vehicle on a stand-alone basis.

Orion Finance Corporation and Orion Finance (USA) LLC (US$1.3 billion of debt securities affected)

Euro and US Commercial Paper Programmes

New Rating: Prime-1 on review for possible downgrade

Previous Rating: Prime-1

Euro and US Medium Term Note Programmes

New Rating: Aaa/ Prime-1 on review for possible downgrade

Previous Rating: Aaa/Prime-1

The placement on review for possible downgrade of the ratings assigned to the CP and MTN programmes reflects the deterioration of the market value of Orion Finance's asset portfolio. Moody's review will focus on the potential for further market value deterioration and the effects of certain restructuring proposals that are currently under consideration by the vehicle.

CAPITAL NOTES

Moody's has taken the following actions on Capital Notes.

Carrera Capital Finance Limited (US$394 million of debt securities affected)

Capital Note Programme

New Rating: Baa2 on review for possible downgrade

Previous Rating: Baa2

Carrera Capital's net asset value declined to 75% from 80% since Moody's last review on September 5th. Moody's review will focus on the effects of certain restructuring proposals that are currently under consideration by the vehicle.

Beta Finance Corporation (US$1.1 billion of debt securities affected)

Capital Note Programme

New Rating: Baa1 on review for possible downgrade

Previous Rating: Baa1

Beta Finance's net asset value declined to 75% from 87% since Moody's last review on September 5th. Moody's review will focus on the potential for further market value deterioration.

Centauri Corporation (US$1.3 bn of debt securities affected)

Capital Note Programme

New Rating: Baa1 on review for possible downgrade

Previous Rating: Baa1

Centauri Corporation's net asset value declined to 76% from 85% since Moody's last review on September 5th. Moody's review will focus on the potential for further market value deterioration.

Dorada Corporation (US$715 million of debt securities affected)

Capital Note Programme

New Rating: Baa1 on review for possible downgrade

Previous Rating: Baa1

Dorada Corporation's net asset value declined to 77% from 87% since Moody's last review on September 5th. Moody's review will focus on the potential for further market value deterioration.

Tango Finance Limited (US$694 million of debt securities affected)

Capital Note Programme

New Rating: Baa1 on review for possible downgrade

Previous Rating: Baa1

Tango Finance's net asset value declined to 77% from 88% since Moody's last review on September 5th. Moody's review will focus on the potential for further market value deterioration.

Asscher Finance Ltd. (US$461 million of debt securities affected)

US Mezzanine and Euro Mezzanine Note Programmes

New Rating: A2 on review for possible downgrade

Previous Rating: A2

Asscher Finance's net asset value declined to 71% from 84% since Moody's last review on September 5th. Moody's review will focus on the potential for further market value deterioration.

Cullinan Finance Limited (US$2.2 billion of debt securities affected)

Income Note Programme

New Rating: Baa2 on review for possible downgrade

Previous Rating: Baa2

Cullinan Finance's net asset value declined to 69% from 78% since Moody's last review on September 5th. Moody's review will focus on the potential for further market value deterioration.

White Pine Corporation Limited (US$358 million of debt securities affected)

Capital Note Programme

New Rating: Baa2 on review for possible downgrade

Previous Rating: Baa2

White Pine's net asset value declined to 70% from 85% since Moody's last review on September 5th. Moody's review will focus on the potential for further market value deterioration.

Hudson-Thames Capital Limited (US$134 million of debt securities affected)

Capital Note Programme

New Rating: Baa3 on review for possible downgrade

Previous Rating: Baa3

Hudson-Thames's net asset value declined to 72% from 86% since Moody's last review on September 5th. Moody's review will focus on the potential for further market value deterioration.

Nightingale Finance Ltd. (US$301 million of debt securities affected)

Capital Notes

New Rating: Baa2 on review for possible downgrade

Previous Rating: Baa2

Nightingale Finance's net asset value declined to 85% from 95% since Moody's last review on September 5th. Moody's review will focus on the potential for further market value deterioration.

Links Finance Corporation (US$1.9 billion of debt securities affected)

Mezzanine Capital Notes

New Rating: Aa2 on review for possible downgrade

Previous Rating: Aa2

Standard Capital Notes

New Rating: A3 on review for possible downgrade

Previous Rating: A3

Links Finance's net asset value declined to 83% from 94% since Moody's last review on September 5th. Moody's review will focus on the potential for further market value deterioration.

Premier Asset Collateralized Entity (PACE) Limited (US$315 million of debt securities affected)

Capital Note Programme

New Rating: Baa2 on review for possible downgrade

Previous Rating: Baa2

PACE's net asset value declined to 76% from 83% since Moody's last review on September 5th. Moody's review will focus on the potential for further market value deterioration.

London
Henry Tabe
Managing Director
Structured Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Paris
Paul Mazataud
Managing Director
Structured Finance Group
Moody's France S.A.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

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