Fitch Downgrades 3 Classes of Pasadena CDO, Ltd.

NEW YORK -- Fitch Ratings has downgraded three classes of notes issued by Pasadena CDO, Ltd. (Pasadena). The details of the rating action follow at the end of this press release.

These rating actions are the result of continued credit deterioration in the portfolio since Fitch's last rating action in February 2009. Approximately 19.3% of the portfolio has been downgraded a weighted average of 6.9 notches and 4.7% has been upgraded a weighted average of 1.4 notches since the last review.

The rating migration in the portfolio has left approximately 31.2% of the portfolio with a Fitch derived rating below investment grade and 13.3% with a rating in the 'CCC' rating category or lower, compared to 23.8% and 10.3%, respectively, when Fitch took its last rating action. The percentage of defaulted securities per the transaction's governing documents has increased to 16.3% of the portfolio from 9.5% during this same period.

This review was conducted under the framework described in the report 'Global Rating Criteria for Structured Finance CDOs'. The class A notes are downgraded to 'BBB' due to the increased risk within the underlying portfolio of assets. Additionally, principal proceeds were needed to cover interest shortfall on the Sept. 21, 2009 distribution date because interest proceeds were insufficient to cover the entire amount of accrued class B interest. This credit enhancement erosion is likely to continue as long as the interest rate swap is out-of-the-money.

The Rating Outlook for the class A notes is revised to Negative from Stable due to the concentration of residential mortgage-backed securities (RMBS) in the portfolio, which are expected to continue to face ratings volatility in the next one to two years.

The class A notes are also assigned a Loss Severity (LS) rating of 'LS3'. The LS ratings indicate each tranche's potential loss severity given default, as evidenced by the ratio of tranche size to the base-case loss expectation for the collateral, as explained in Fitch's 'Criteria for Structured Finance Loss Severity Ratings' report. The LS rating should always be considered in conjunction with the probability of default for tranches with a long-term credit rating in the 'B' rating category or higher.

According to the Sept. 6, 2009 trustee report, the class B notes are already undercollateralized, with an overcollateralization ratio of 98.4%. Based on the expectation that principal will continue to be used to pay a portion of the class B interest distribution and the credit quality of the portfolio, the class B notes are downgraded to 'CCC' to indicate Fitch's belief that default is a real possibility at or prior to maturity.

The class C notes are no longer receiving interest distributions due to failing class A and class B coverage tests and are not expected to receive any distributions in the future. The class C notes are downgraded to 'C' to indicate Fitch's belief that default is inevitable at or prior to maturity.

Pasadena is a structured finance collateralized debt obligation (SF CDO) that closed on June 21, 2002 and is managed by Western Asset Management Co. The portfolio is composed of RMBS (56.5%), asset-backed securities (28.7%), commercial mortgage-backed securities (12.5%), SF CDOs (1.2) and corporate bonds (1.1%).

Fitch has downgraded, revised Outlooks, and assigned LS ratings to the following classes of Pasadena CDO, Ltd. as indicated:

--$138,515,881 class A to 'BBB/LS3' from 'A'; Outlook to Negative from Stable;

--$66,500,000 class B to 'CCC' from 'BB-';

--$26,500,000 class C to 'C' from 'CC'.

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 Structured Finance Rating Criteria' (Sept. 30, 2009);

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

--'Criteria for Structured Finance Loss Severity Ratings' (Feb. 17, 2009).

Additional information is available at 'www.fitchratings.com'.

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