Fitch Downgrades 8 Classes From Duke Funding XIII, Ltd.
--$46,655,514 class X downgraded to 'C' from 'AAA', and removed from Rating Watch Negative;
--$912,491,390 class A1SVF downgraded to 'C' from 'BB'; and removed from Rating Watch Negative;
--$321,000,000 class A1J downgraded to 'C' from 'B', and removed from Rating Watch Negative;
--$185,000,000 class A2S downgraded to 'C' from 'CCC', and removed from Rating Watch Negative;
--$55,000,000 class A2J downgraded to 'C' from 'CC', and removed from Rating Watch Negative;
--$119,140,625 class A3 downgraded to 'C' from 'CC', and removed from Rating Watch Negative;
--$45,781,250 class B1 downgraded to 'C' from 'CC', and removed from Rating Watch Negative;
--$50,359,375 class B2 downgraded to 'C' from 'CC', and removed from Rating Watch Negative.
Duke Funding XIII is a hybrid structured finance (SF) collateralized debt obligation (CDO) that closed on June 27, 2007 and is managed by Duke Funding Management, LLC, a wholly owned subsidiary of Ellington Management Group, LLC. At the time of closing, approximately $944 million of unfunded super-senior credit default swaps (CDS) and $906.4 million of funded notes and funded subordinated notes were issued and have invested those proceeds in a $1.80 billion portfolio of combined synthetic and cash securities and total return swaps (TRS). Duke Funding XIII's current portfolio is comprised of 96.6% U.S. subprime residential mortgage-backed securities (RMBS), 3.4% is comprised of U.S. Alternative-A (Alt-A) RMBS, and 1.2% of prime RMBS. Subprime RMBS of the 2005, 2006, and 2007 vintages account for approximately 22.4%, 55.1%, and 17.3% of the portfolio, respectively.
Fitch's rating actions reflect the significant collateral deterioration within the portfolio, specifically subprime RMBS. Since Nov. 21, 2007, approximately 91.5% of the portfolio has been downgraded with 6.7% of the portfolio currently on Rating Watch Negative. Over 97% of the portfolio is now rated below investment grade with 92.2% of the portfolio rated 'CCC+' and below. Fitch notes that, overall, 93% of the assets in the portfolio now carry a rating below the rating it assumed in November 2007. As per the latest Trustee report dated June 07, 2008, defaulted and deferred interest PIK securities constitute 51%, or $882.6 million, of the portfolio total. As a result of this deterioration, the transaction has entered an Event of Default in May of 2008. On June 10, 2008, the noteholders voted to instruct the Trustee to begin the liquidation process. Fitch expects the majority of the liquidation proceeds to be distributed to the swap counterparty.
The rating on the class X notes addresses the likelihood that investors will receive timely payments of note interest and principal, and is based on the stated maturity dates of the collateral debt securities. The rating of the class X notes does not address the timely payment of note interest and principal in the event of prepayments on the collateral debt securities. The ratings on the classes A1S, A1J, A2S, and A2J (collectively, with the class A3 notes, the class A notes) notes, address the timely receipt of scheduled interest payments and the ultimate receipt of principal as per the transaction's governing documents. The ratings on the class A3 notes and B1 and B2 notes (collectively the class B notes) address the ultimate receipt of interest payments and the ultimate receipt of principal as per the transaction's governing documents.
Fitch will continue to monitor and review this transaction for future rating adjustments. Additional transaction information and historical data are available on the Fitch Ratings web site at www.fitchratings.com.
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|Date:||Aug 4, 2008|
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