Fitch Downgrades & Removes 7 Classes of Nautilus RMBS CDO III, Ltd/LLC from Watch Negative.

NEW YORK -- Fitch downgrades and removes from Rating Watch Negative seven classes of notes issued by Nautilus RMBS CDO III, Ltd/LLC (Nautilus III). The following rating actions are effective immediately:

--$245,817,241 class A-1S to 'CCC' from 'AAA';

--$44,177,714 class A-1J to 'C' from 'AAA';

--$32,653,093 class A-2 to 'C' from 'A+';

--$13,925,584 class A-3V to 'C' from 'BBB';

--$3,841,540 class A-3F to 'C' from 'BBB';

--$15,846,354 class B to 'C' from 'BB';

--$4,801,925 class C to 'C' from 'B+' .

Fitch's rating actions reflect the credit deterioration within the portfolio and underlying exposure to Alternative-A (Alt-A) and subprime residential mortgage-backed securities (RMBS).

Nautilus III is a static cash flow collateralized debt obligation (CDO) that closed on July 12, 2006 and is managed by RCG Helm, LLC. Presently, 34.5% of the portfolio consists of U.S. prime RMBS, 56.1% Alt-A RMBS and 9.4% subprime RMBS.

Since Nov. 21, 2007, approximately 46.3% of the portfolio has been downgraded with 10.5% of the portfolio currently on Rating Watch Negative. Of the portfolio, 51.5% is now rated below investment grade, with 1.91%, 23.01% and 6.65% of prime, Alt-A and subprime RMBS rated 'CCC+' or below, respectively. Overall, 48.8% of the assets in the portfolio now carry a rating below the rating assumed in Fitch's November 2007 review.

The collateral deterioration has caused each of the overcollateralization (OC) tests to fall below 100% and fail their respective triggers. As of the trustee report dated July 31, 2008, the senior OC ratio was 96.4%, the class A-3 OC ratio was 91.4% and the class B OC ratio was 87.3%. Fitch received notice that the senior OC ratio fell below 91.8% on Aug. 7, 2008 which caused an Event of Default (EOD) to occur. As a result of the EOD, the controlling class, currently the class A-1S notes, and each hedge counterparty have elected to accelerate the notes and direct the sale and liquidation the portfolio. The liquidation is expected to be completed by October 2008.

Proceeds from the sale of the collateral will be first used to pay administrative fees and hedge termination payments, followed by interest and principal distributions to the class A-1S notes. Fitch expects that the proceeds from the liquidation of the collateral will be insufficient to pay the class A-1S notes in full. The remaining classes are not expected receive interest or principal distributions going forward. The downgrades to the rated notes reflect Fitch's updated view of the default risk associated with each of the notes.

Fitch is reviewing its SF CDO approach and will comment separately on any changes and potential rating impact at a later date. Fitch will continue to monitor and review this transaction for future rating adjustments. Additional transaction information and historical data are available on the Fitch Ratings web site at www.fitchratings.com.

The ratings on the class A-1S, A-1J and A-2 notes address the timely receipt of scheduled interest payments and the ultimate receipt of principal as per the transaction's governing documents. The ratings on the class A-3L, A-3F, B and C notes address the ultimate receipt of interest payments and ultimate receipt of principal as per the transaction's governing documents. The ratings are based upon the capital structure of the transaction, the quality of the collateral, and the protections incorporated within the structure.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.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.