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Rating Action:

Moody's takes various rating actions on five CPDO Notes

01 Jul 2010

Approximately 125 million USD of debt securities affected

London, 01 July 2010 -- Moody's Investors Service announced today it has taken various actions on the ratings of following series of Constant Proportion Debt Obligations ("CDPO") notes:

Issuer: Castle Finance II Limited - SURF CPDO Series 2

....US$25M SURF Constant Proportion Debt Obligation Notes Series 2 Notes, Downgraded to Caa2; previously on Aug 28, 2009 Confirmed at Caa1

Issuer: SEA CDO Ltd - R-Evolution Transaction

....EUR50M Serie 2007-3 EUR 50,000,000 R Evolution Credit Linked Notes on iTraxx® Europe and CDX North American Investment Grade™ Notes, Upgraded to Ba3; previously on Aug 28, 2009 Confirmed at B1

....US$10M Serie 2007-5 USD 10,000,000 R Evolution Credit Linked Notes on iTraxx® Europe and CDX North American Investment Grade™ Notes, Upgraded to Ba3; previously on Aug 28, 2009 Confirmed at B1

Issuer: Thebes Capital PLC - Series 2007-1 (Artemis DPI)

....US$25M Series 2007-1 "Artemis" DPI Notes Notes, Downgraded to Caa2; previously on Sep 2, 2009 Confirmed at Caa1

Issuer: Cairn CPDO I Finance Limited - Series B1-U1 Turbo

....US$6.6M Series B1-U1 Turbo Aa2 Callable Floating Rate Notes due 2017 Notes, Downgraded to C; previously on Aug 28, 2009 Confirmed at Caa3

In addition, Moody's has withdrawn the rating on the following notes:

Issuer: Thebes Capital Plc Series 2007-2

....EUR4M Series 2007-2 "Artemis" DPI Notes Notes, Withdrawn; previously on Sep 2, 2009 Downgraded to C

The rating of Cairn CPDO I Finance Limited -- Series B1-U1 Turbo will also be withdrawn shortly because the notes have been cancelled in accordance with their terms.

Moody's says that the various rating actions taken on the five CPDO transactions reflect its latest assessment of the evolution of the short-term and long-term risks of these transactions in the recent spread environment. In its rating decisions, Moody's has placed varying weights on the short-term risk and long-term risk in these transactions as the spread environment changed over the past two years. Moody's identifies the short-term risk and the long-term risk in these CPDO transactions as follows:

a) The short-term risk is characterized by the possibility of a cash-out event resulted from a significant spread widening over a short period of time. As described in Moody's CPDO monitoring methodology report (as listed at the end of this press release), a specific rating of the rated note is associated with the short term risk measure - a minimum level of spread widening to occur within a month that would trigger the transaction to experience a cash-out event.

b) The long-term risk is characterized by the failure of the CPDO transaction to repay principal and interest due at or before maturity, whether it is due to spreads widening or other events occuring during the life of the transaction that may erode the Net Asset Value (NAV). The other events may include defaults, mark-to-market losses incurred upon rolling the portfolio, or the underlying obligors paying a spread too low to cover costs.

Using the frequently reported data on the NAV of the referenced portfolio, the level of cash, the risky duration, the coupon and the swap spread in these transactions, Moody's has calculated the long-term risk measure to be the sum of the marked-to market value of the swap, the cash deposit and the estimation of the proceeds over the remaining life of the transaction less an estimation of the interest costs over the life of the transaction. This measure is used as a proxy for the expected principal at maturity, and the use of this measure replaces a more detailed modeling of the future evolution of the NAV from the current level, under specific scenarios that depend on the target rating of the CPDO Notes. The detailed modeling approach is described in the CPDO monitoring methodology report listed at the end of this press release.

Moody's has observed during the recent credit crisis and dramatic spread volatility in 2008 and 2009 that the short-term risk component is a dominating factor in assessing the credit risk of CPDO notes in the volatile spread environment. In the meantime, the long-term risk measure can also be subject to significant volatility due to the high leveraged nature of these transactions. After reviewing the historical values for the long-term measure of these transactions, Moody's has determined to give some limited benefit to those cases where the value of the long-term measure is above 100% so that ratings fall in the Ba range. For those cases where the value of the long-term measure is below 50% the ratings would fall in the Caa range. The ranges of possible ratings based on the long-term measure are then used in combination with the rating levels associated with a transaction's short term spread widening that would trigger a cash-out event in Moody's final rating assessment for these transactions.

In particular, Moody's notes that the two R-Evolution transactions currently have the long-term measure of above 100% and can also withstand a short-term spread widening that is consistent with a Ba rating, contributing to a upgrade to Ba3 today. On the other hand, Surf CPDO Series 2 and Thebes 2007-1 have a long-term measure that is valued significantly below 50%, contributing to a one notch downgrade to Caa2 today.

Finally, Moody's note that the withdrawal on the Cairn CPDO I Finance Limited series B1-U1 Turbo follows the cancellation of the Notes in accordance with their terms and the withdrawal on the Thebes Capital Plc Series 2007-2 "Artemis" follows the buy-back of the notes resulting in the cancellation of the Notes on 22 March 2010. Both series of notes were cancelled. For Moody's policy on rating withdrawals, please refer to "Moody's Guidelines for the Withdrawals of Ratings" on moodys.com.

Moody's monitors these transactions primarily using the methodology published on the 23 July 2008 ("A description of Moody's Tools for Monitoring CPDO Transactions"), with additonal refinements described above.

This report can be found at www.moodys.com in the Research and Ratings directory, in the Ratings Methodologies subdirectory. Other methodologies and factors that may have been considered in the process of rating these issuances can also be found in the Ratings Methodologies subdirectory. 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.

New York
Jian Hu
Managing Director
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

London
Christophe Larpin
Asst Vice President - Analyst
Structured Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's takes various rating actions on five CPDO Notes
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