Fitch Downgrades 5 Classes of the Notes Issued by Acacia CDO 5, Ltd./Inc.

NEW YORK -- Fitch Ratings has downgraded five classes of notes issued by Acacia CDO 5, Ltd./Inc. (Acacia 5). A complete list of rating actions follows at the end of this press release.

Fitch's Global Structured Finance Collateralized Debt Obligation (SF CDO) criteria were used to analyze the quality of the underlying securities in Acacia 5. These rating actions are the result of continued credit deterioration in the portfolio since Fitch's last rating action in February 2009. Approximately 66.4% of the portfolio has been downgraded since the last review, with about 34.7% of the portfolio downgraded since June 1, 2009. These downgrades have resulted in approximately 73.7% of the portfolio having a Fitch derived rating below investment grade and 39.1% with a rating in the 'CCC' rating category or lower, compared to 26.4% and 3.5%, respectively, in February 2009. The percentage of the portfolio that is considered defaulted per Acacia 5's governing documents has increased to 12.3% according to the Aug. 31, 2009 trustee report, from 1.9%.

The class A notes have amortized approximately 50% since close, mainly due to normal amortization of the underlying assets. The class C overcollateralization (OC) ratio has declined to 102.9%, below its covenant of 104.6% as of the Aug. 4, 2009 trustee report, diverting interest proceeds to redeem class A principal after paying interest to the class C notes on the Aug. 10, 2009 distribution date. While the class A notes are expected to continue receiving excess spread due to failing coverage tests, the amount of credit deterioration in the portfolio greatly outweighs the benefit from the amortization of the capital structure.

Additionally, the class A notes are 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 LS Rating criteria. 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.

The class B notes are downgraded to 'CC' to reflect Fitch's opinion that, based on the percentage of defaulted securities in the portfolio and the performance expectations for the remainder of the portfolio, there is a high probability the notes will default at or prior to maturity. The classes C, D and E notes are downgraded to 'C' to indicate Fitch's belief that default is inevitable at or prior to maturity.

Acacia 5 is a SF CDO that closed on July 14, 2004 and is managed by Redwood Asset Management, a subsidiary of Redwood Trust, Inc. The portfolio is composed primarily of residential mortgage-backed securities (RMBS [79.2%]), SF CDOs (12.8%) and commercial mortgage-backed securities (5.6%).

Fitch has downgraded, assigned LS ratings and revised Outlooks as applicable:

Acacia CDO 5, Ltd./Inc.

-- $110,338,451 class A notes to 'B/LS3' from 'AA'; Outlook to Negative from Stable;

-- $42,250,000 class B notes to 'CC' from 'BBB+';

-- $9,000,000 class C notes to 'C' from 'BB+';

-- $3,023,294 class D notes to 'C' from 'BB';

-- $5,427,964 class E notes to 'C' from 'BB-'.

The outlook on the class A notes is revised to Negative due to the concentration of RMBS assets in the portfolio, which are expected to continue to face ratings volatility until the housing market stabilizes. Fitch does not assign rating outlooks to classes rated 'CCC' or below.

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);

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

Additional information is available at www.fitchratings.com.

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