Fitch Affirms 1, Downgrades $218MM, & Places 3 on Watch Negative of GSC ABS CDO 2006-4u, Ltd./Corp.

CHICAGO -- Fitch has affirmed one class of notes, downgraded five classes, and placed three classes of notes issued by GSC ABS CDO 2006-4u, Ltd. (GSC 2006-4u) on Rating Watch Negative. The following rating actions are effective immediately:

--$0 class A-S1VF notes affirmed at 'AAA';

--$85,000,000 class A1 notes downgraded to 'AA' from 'AAA', placed on Rating Watch Negative;

--$45,000,000 class A2 notes downgraded to 'A' from 'AA', placed on Rating Watch Negative;

--$45,000,000 class A3 notes downgraded to 'BB' from 'A', placed on Rating Watch Negative;

--$33,000,000 class B notes downgraded to 'CCC' from 'BBB', remains on Rating Watch Negative;

--$10,000,000 class C notes downgraded to 'CC' from 'BB+', remains on Rating Watch Negative.

GSC 2006-4u is a hybrid cash and synthetic arbitrage collateralized debt obligation (CDO), which closed on Oct. 6, 2006. The portfolio is managed by GSC Group who maintains a CDO asset manager rating of 'CAM2' for structured finance CDOs. GSC 2006-4u is composed of 94.28% residential mortgage-backed securities (RMBS), 0.84% commercial mortgage-backed securities (CMBS), and 4.88% CDOs. On July 12, 2007, class B and class C notes were placed on Rating Watch Negative because of negative migration of subprime RMBS assets in the portfolio. Included in this review, Fitch discussed the current state of the portfolio with the asset manager. Fitch also conducted cash flow modeling for various default timing, interest rate scenarios, and prepayment assumptions to measure the breakeven default rates going forward relative to the minimum cumulative default rates required for the rated liabilities.

Approximately 92.50% of the portfolio is 2005-2007 Vintage Subprime collateral. As of the most recent trustee report on July 31, 2007, the Fitch weighted Average Rating Factor (WARF) of 6.70 is failing the covenant of 6.00. The class B overcollateralization test and class C interest diversion tests at 102.5% and 101.0%, respectively are failing the covenants of 103.0% and 102.5%. As a result of the test failures, the structure is delevering and on the Aug. 6, 2007 payment date, there was a $1.9 MM reduction of the Commitment Amount by deposit to the GIC. Additionally, there is $290,140 in unpaid class C interest. Since the class B and C notes were placed on Rating Watch Negative on July 12, 2007, 9.26% of the total portfolio has experienced negative credit migration and approximately 1.23% is on Rating Watch Negative.

The ratings of the class A-S1VF notes, class A1 notes and class A2 notes address the likelihood that investors will receive full and timely payments of interest, as per the governing documents, as well as the aggregate outstanding amount of principal by the stated maturity date. The ratings of the class A3, class B and class C notes address the likelihood that investors will receive ultimate and compensating interest payments, as per the governing documents, as well as the aggregate outstanding amount of principal by the stated maturity date.

Fitch believes that this subprime exposure, along with credit deterioration in the portfolio has increased the risk profile of classes A1, A2, A3, B, and C notes. This rating analysis also incorporated Fitch's revised methodology for rating structured finance CDOs. For more information, see 'Global Criteria Change for U.S. Structured Finance CDOs Reflects Heightened Subprime Risks,' dated Aug. 15, 2007 and available on the Derivative Fitch web site at www.derivativefitch.com.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.derivativefitch.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site. Fitch means Fitch, Inc., Fitch Ratings, Ltd. and their subsidiaries including Derivative Fitch, Inc. and Derivative Fitch Ltd. and any successor or successors thereto.