Fitch Downgrades 18 Classes from WASI Finance Ltd Partnership 2006-HES1.

NEW YORK -- Fitch Ratings has downgraded and assigned Loss Severity ratings to the securities of WASI Finance Limited Partnership Credit-Linked Notes, Series 2006-HES1 (the issuer) as follows:

--$4,783,621,472 class A-1-A to 'A/LS1' from 'AAA'; Outlook Stable (Not Offered);

--$500,000 class A-1-B to 'A/LS5' from 'AAA'; Outlook Stable (Not Offered);

--$227,420,000 class M-1 to 'BBB/LS4' 'AAA'; Outlook Stable (Not Offered);

--$114,198,000 class M-2 to 'BB/LS5' from 'AA+'; Outlook Stable (Not Offered);

--$56,111,000 class M-3-A to 'BB/LS5' from 'AA+'; Outlook Stable (Not Offered);

--$500,000 class M-3-B to 'BB/LS5' from 'AA+'; Outlook Stable (Not Offered);

--$50,754,000 class M-4 Notes to 'B/LS5' from 'AA'; Outlook Negative;

--$39,042,000 class M-5 to 'B/LS5' from 'AA'; Outlook Negative;

--$48,802,000 class M-6 to 'CCC/RR2' from 'A+';

--$41,306,000 class B-1-A to 'CC/RR2' from 'A';

--$7,496,000 class B-1-B to 'CC/RR1' from 'A';

--$105,413,000 class B-2 to 'C/RR2' from 'BBB-' (Not Offered);

--$40,994,000 class B-3 to 'C/RR2' from 'BB' (Not Offered);

--$14,540,000 Class B-4-A to 'C/RR5' from 'BB-' (Not Offered);

--$100,000 class B-4-B to 'C/RR6' from 'BB-' (Not Offered);

--$14,944,121 class B-5 to 'D/RR6 from 'B+' (Not Offered);

--$0 class B-6 to 'D/RR6' from 'B' (Not Offered);

--$0 class B-7 to 'D/RR6' from 'B-' (Not Offered).

The transaction is a synthetic balance sheet transaction that references a $5.4 billion diversified portfolio of fixed and adjustable rate, second lien home mortgage loans, all of which are originated and serviced by Wachovia Bank, National Association. The transaction is designed to provide credit protection for realized losses on the reference portfolio through a credit default swap (CDS) that is documented under an International Swaps and Derivatives Association (ISDA) agreement between the issuer and the swap counterparty. Under the terms of the CDS, the swap counterparty will make premium payments to the issuer in exchange for protection payments on any losses in the portfolio that exceed the subordination of the class B-2 notes. The notes mature on the June 2011 distribution date.

Expected losses (EL) were determined on this transaction by assigning a frequency of foreclosure (FOF) to each delinquency bucket in the transaction. Since the reference pool is 100% second lien collateral a severity assumption of 100% was utilized.

A cash flow analysis was performed to assess each bond's credit risk. Fitch determined the amount of pool collateral losses that will cause the bond to experience a dollar of impairment. This amount is referred to as the bonds break loss (BL) This analysis takes into account a bond's position in the capital structure, payment priority, and any other structural features that provide loss protection to the bond.

The relationship between the bonds' BL and the EL is used to determine the bonds loss coverage ratio (LCR). This is used to drive the ratings on the transaction. The ratings on the notes address the timely payment of interest and ultimate repayment of principal upon maturity.

In addition to the Long-Term Rating for each bond, Fitch assigns Recovery Ratings for bonds rated below 'B'. The Recovery Rating scale is based upon the expected relative recovery characteristics of an obligation. For structured finance, Recovery Ratings are designed to estimate recoveries on a forward-looking basis while taking into account the time value of money. For more information about Recovery Ratings, see Fitch Research on 'Definitions of Ratings and Other Scales,' dated March 3, 2009, available on Fitch's web site at www.fitchratings.com.

In conjunction with these rating actions, Fitch Ratings has assigned Loss Severity (LS) ratings to eight bonds. Introduced in February, LS ratings are meant to complement the existing Long-Term Credit (LTC) ratings for structured finance securities. LTC ratings exclusively address the probability of default of a security. The LS ratings provide an indication of the relative degree of risk that a security might suffer a high loss severity in the event that the security defaults. It will always be necessary to consider loss severity (as indicated by the LS rating) in conjunction with probability of default (as indicated by the LTC rating.) The LS rating scale consists of five rating categories from 'LS1' to 'LS5'. LS ratings are only assigned to securities that have corresponding LTC ratings in rating categories 'AAA' through 'B'. The LS rating category to be assigned will be determined through a calculation that measures the size of the tranche (tranche thickness) relative to the base expected loss determined for the asset portfolio underlying the transaction. Additional information is available in Fitch's Feb. 17, 2009 global report, 'Criteria for Structured Finance Loss Severity Ratings', available at www.fitchratings.com.

Additional details are available in the following research, also available at www.fitchratings.com:

--'U.S. Prime RMBS Surveillance Criteria' (March 30, 2009);

--'U.S. Prime RMBS: Performance Update' (March 23, 2009),

--'Fitch Downgrades Wells Fargo's IDR to 'AA-'; Outlook Stable' (July 22, 2009).

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.