Fitch Rates Vertical ABS CDO 2006-2, Ltd./Corp.

NEW YORK -- Fitch has assigned the following ratings to notes issued by Vertical ABS CDO 2006-2, Ltd. and Vertical ABS CDO 2006-2, Corp.(collectively, the co-issuers):

-- $335 million class A-S1VF senior secured floating-rate notes due 2046 'AAA';

-- $52 million class A1 senior secured floating-rate notes due 2046 'AAA';

-- $41 million class A2 senior secured floating-rate notes due 2046 'AA';

-- $26 million class A3 secured deferrable interest floating-rate notes due 2046 'A';

-- $21 million class B mezzanine secured deferrable interest floating-rate notes due 2046 'BBB';

-- $5 million class C mezzanine secured deferrable interest floating-rate notes due 2046 'BB+'.

The ratings of the class A-S1VF, A1 and A2 notes address the likelihood that investors will receive full and timely payments of interest, as per the governing documents, as well as the aggregate outstanding amount of principal by the stated maturity date. The ratings of the class A3, B and C notes address the likelihood that investors will receive ultimate and compensating interest payments, as per the governing documents, as well as the aggregate outstanding amount of principal by the stated maturity date.

The ratings are based upon the capital structure of the transaction, the quality of the collateral, the Guaranteed Investment Contract (GIC) account, and the overcollateralization coverage tests provided for within the indenture. During the four-year reinvestment period, the collateral manager may trade up to 15% of the total portfolio balance annually on a discretionary basis, along with any credit risk, defaulted or impaired securities as determined by the collateral manager.

The collateral portfolio will be managed by Vertical Capital Investment Advisors (VCIA). The quality of the collateral will have a maximum Fitch weighted average rating factor (WARF) of 5.0 ('BBB/BBB-'). The proceeds of the notes will be used to purchase a portfolio of real estate based structured finance securities, consisting of approximately 95% credit default swaps (CDS) of subprime residential mortgage-backed securities (RMBS), and 5% CDS of collateralized debt obligations (CDOs). VCIA also has the ability to include cash securities in the portfolio; however, at issuance the initial portfolio consisted entirely of synthetic securities.

Structural features include the GIC account that has an initial balance of $160 million from cash proceeds. If there are any credit events with respect to the CDS in the portfolio, the GIC account will initially make credit protection payments. After the GIC account has been depleted, the class A-S1VF will be drawn to make credit protection payments (or for payment in the case of the physical settlement option). The outstanding drawn amount of the class A-S1VF receives an interest rate of 3-month London Interbank Offered Rate (LIBOR) plus 29 basis points (bps), while the undrawn portion of the senior swap will receive 16bps ongoing.

During the four-year reinvestment period, the collateral manager may use cash principal collections to purchase additional collateral for the portfolio or may re-reference securities as the synthetic assets amortize. All reinvested and re-referenced assets must adhere to the eligibility criteria. The GIC account may also be drawn upon to purchase additional cash bonds during the reinvestment period; however, at all times the CDS notional must be equal to or less than the sum of the unfunded amount of the class A-S1VF and the GIC account.

VCIA is a subsidiary of Vertical Capital, LLC (Vertical Capital), which was established in December 2002 as a Delaware limited liability corporation. Vertical Capital is owned 46% by its seven principals, 48% by Bank of America, and 6% by third party investors. Vertical Capital describes itself as a collateral manager dedicated to the structured finance securities markets. Vertical Capital currently manages seven existing CDOs and as of December 2005 had in excess of $5 billion in assets under management.

For more information, see the presale report 'Vertical ABS CDO 2006-2, Ltd.,' available on the Fitch Ratings web site at 'www.fitchratings.com'.

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.