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Fitch Downgrades 8 Classes of Kimberlite CDO I; Assigns Outlooks.

NEW YORK -- Fitch Ratings has downgraded and assigned Outlooks to notes issued by Kimberlite CDO I, Ltd./LLC (Kimberlite CDO I). The following rating actions are effective immediately:

--$79,375,000 class A to 'B' from 'AAA'; Outlook Stable;

--$40,125,000 class B to 'B' from 'AA'; Outlook Stable;

--$45,750,000 class C to 'CCC' from 'A+';

--$10,125,000 class D to 'CCC' from 'A';

--$9,750,000 class E to 'CCC' from 'A-';

--$11,625,000 class F to 'CCC' from 'BBB+';

--$12,000,000 class G to 'CCC' from 'BBB-';

--$22,500,000 class H to 'CCC' from 'BB.

These rating actions reflect Fitch's view on industry and vintage concentration risks outlined in its revised Structured Finance CDO rating criteria released Dec. 16, 2008. Classes were assigned Stable Outlooks reflecting Fitch's expectation that the ratings will remain stable over the next one to two years. Outlooks were not assigned to classes in any 'C' category.

Kimberlite CDO I is a revolving hybrid commercial real estate (CRE) collateralized debt obligation (CDO) that closed on Sept. 28, 2006. Kimberlite CDO I combines the use of synthetic and cash assets, as well as unfunded and funded liabilities. The capital structure of the transaction includes a $500 million unfunded super senior facility and $250 million of funded notes. The portfolio is selected and managed by BlackRock Financial Management, Inc. Kimberlite CDO I has a five-year reinvestment period during which the collateral manager has the ability to sell 15% of the collateral per annum on a discretionary basis. During the five-year reinvestment period, the collateral manager may use cash principal collections to purchase additional collateral for the portfolio or may enter into additional credit default swap (CDS) or total return swap (TRS) transactions in the event of CDS or TRS contract expiry. The collateral manager may also use the available TRS facility to gain exposure to cash assets and synthetic assets structured as credit-linked notes and to effect conversions between cash and synthetic assets. The reinvestment period ends in October 2011.

The key drivers for the rating actions to this transaction include 91.9% concentration in commercial mortgage-backed securities (CMBS) and 8.1% concentration in structured finance (SF) CDOs. Of the collateral, 28.5% was issued in 2006 and 2007 (Vintage 1) and 71.5% was issued in 2004 and 2005 (Vintage 2). The transaction has above-average diversity for CRE CDOs with 55 obligors. The current Fitch derived weighted average rating is 'BB+', as compared to 'BBB-/BB+' at the last review in July 2007, with 34.4% currently rated below investment grade. There is one defaulted asset (0.7%) in the portfolio.

As of the Feb. 20, 2009 trustee report, the Class A/B Par Value Coverage Ratio (109.63%) has breached its covenant of 114.07%. As a result, cash flow, after paying interest to the timely classes A and B, will be redirected to reduce the balance of the unfunded super senior facility until the test is cured. As such, Fitch expects classes C through H to pay in kind (PIK) in the next payment period whereby the principal is written up by the amount of interest owed until either the coverage test is cured or the balance of all the senior classes have been reduced to zero. The Super Senior Facility Par Value Coverage Ratio was reported at 135.83% compared to a covenant of 123.90%. A liquidity trigger event would occur if this ratio falls below its covenant allowing the issuer to make draws on the liquidity facility. A liquidity termination event would occur should this ratio fall below 102.5%.

Asset analysis was performed through Fitch's Portfolio Credit Model. The liability analysis was performed through Fitch's proprietary cash flow model customized to reflect the specific structural features of the transaction under various interest rate and default timing stresses.

The ratings of the class A and B 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 C, D, E, F, G and H 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 rating actions resolve the 'Under Analysis' status issued on Oct. 14, 2008 following Fitch's announcement of its proposed criteria revision for analyzing structured finance (SF) CDOs. The revised criteria report, 'Global Rating Criteria for Structured Finance CDOs' was published in its final form on Dec. 16, 2008 along with an updated version of the Fitch Portfolio Credit Model (PCM) that includes additional functionality for analyzing SF CDOs. As part of this review, Fitch evaluated the current credit quality of the portfolio and made standard adjustments for any names on Rating Watch Negative, reducing such ratings for default analysis purposes by three notches.

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.

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.
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Publication:Business Wire
Date:Mar 5, 2009
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