Fitch Downgrades 2 Classes of Grenadier Funding, Ltd.

NEW YORK -- Fitch Ratings has downgraded two classes of notes issued by Grenadier Funding, Ltd. (Grenadier).

These rating actions are the result of continued credit deterioration experienced since Fitch's last rating action. Approximately 42.2% of the portfolio carries a Fitch-derived rating below investment grade, with 26.3% rated in the 'CCC' category or lower. This is up from 9.8% rated below investment grade and 7.3% rated 'CCC' and lower at the last review.

Since the last review, the class A-1 overcollateralization test has dropped to 76.9% and is failing the covenant of 104.5%. Consequently, after paying interest to class A-2 all funds are being used to pay down the $1,077,686,108 funding notes. The commercial paper notes were paid in full through the issuance of the funding notes, which Fitch does not rate.

As of the July 31, 2009 trustee report, 16.9% of the portfolio is considered defaulted. Fitch has downgraded the class A-1 and class A-2 to 'C' due to the exposure to defaulted assets. Default of these classes is inevitable. The class A-1 and A-2 notes continue to receive interest payments, but Fitch does not expect any principal recovery. The class B notes are receiving interest paid in kind (PIK) whereby the principal amount of the notes is written up by the amount of interest due. The class B notes remain at 'C'. Fitch does not expect this class to receive any future payments.

Grenadier is a collateralized debt obligation (CDO) that closed July 21, 2003 and was managed by ACA Management LLC until May 2008, when management duties were transferred to Solidus Capital, LLC. The reinvestment period ended in August 2008. The reference portfolio is composed of 45.8% subprime residential mortgage backed securities (RMBS), 22.2% prime RMBS, 14.0% CDOs, 13.2% asset backed securities (ABS), and 0.2% commercial mortgage backed securities (CMBS).

Fitch will continue to monitor and review this transaction for future rating adjustments. Additional transaction information and historical data are also available at 'www.fitchratings.com'.

Fitch has taken the following rating actions:

--$60,000,000 class A-1 notes downgraded to 'C' from 'CCC';

--$15,000,000 class A-2 notes downgraded to 'C' from 'CC';

--$86,142,317 class B notes affirmed at 'C'.

These rating actions reflect the application of Fitch's current criteria which are available at 'www.fitchratings.com' and specifically include the following reports:

'Global Rating Criteria for Structured Finance CDOs' (Dec. 16, 2008),

'Criteria for Structured Finance Loss Severity Ratings' (Feb. 17, 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.