credit migration of cdo notes, 1996 - 2007, for us and

STRUCTURED FINANCE Special Report

Credit Migration of CDO Notes, 1996 - 2007, for US and European Transactions

AUTHOR:Danielle NazarianSenior Vice President(212) [email protected]

CO-AUTHOR:Maria MiagkovaVice President/Senior Analyst(212) [email protected]

CONTRIBUTOR:Connie LiSenior Associate(212) [email protected]

CONTACTS:Yvonne FuManaging Director(212) [email protected]

Gareth LevingtonManaging Director(4420) [email protected]

William MayManaging Director(212) [email protected]

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ONTENTS

Summary OpinionBrief Review of 2007 Rating ActionsCDO Transition Rates – Study Results— 2007 Rating Transition Rates by CDO Type— Historical Average Transitions by CDO Type – Weighted Average

One-Year Downgrade Rates— Cumulative Downgrade Transition Rates for Arbitrage Cash

Flow CLOs— CDO vs. Corporate Rating TransitionsYear-to-Date 2008 Rating ActionsConclusion & OutlookAppendix (Tables 1 - 34)

SUMMARY OPINIONThe CDO market's credit performance in 2007 was characterized by a significantbifurcation. Downgrades within the resecuritization CDO sector ballooned tounprecedented levels, reflecting the impact of credit deterioration in the USsubprime RMBS market. All other CDO categories, including arbitrage cash flowCLOs, synthetic arbitrage CDOs, and arbitrage cash flow CBOs, exhibited a fairlybenign number of negative ratings changes.

Relative to 2006, the downgrade count grew by 834%, and the upgrade countdeclined by 16%. The resulting 2007 CDO downgrade to upgrade ratio of 8 to 1 isin sharp contrast to that observed in each of the previous two years, when upgradesslightly outpaced downgrades. Looking forward through 2008, we expect evengreater ratings volatility among US dollar-denominated resecuritization CDOs, as sig-naled by the nearly 2,000 tranches currently under review for downgrade.

Key Observations for 2007:• As a result of the impact of credit deterioration in US subprime RMBS, US dol-

lar-denominated resecuritization CDOs underwent a vast number of down-grades. A total of 1,331 tranches were affected, accounting for 92% of 2007's1,448 downgrades. Downgrades within this CDO category were heavily con-centrated in the 2006 and 2007 vintages, which accounted for 87% of 2007'stotal CDO downgrades. The downgrade rate for US dollar resecuritizationCDOs grew to 21.7% in 2007 from 2.8% in 2006.1 Across most rating catego-ries, the magnitude of rating changes averaged 6+ rating subcategories.

1 A one-year downgrade rate measures the number of tranches downgraded during a year as a percentage of the total number of rated tranches outstanding at the beginning of that year. Because its purpose is to examine rating changes over a one-year time horizon, it does not include tranches rated during the year that is being analyzed. As a result, the 2007 one-year downgrade rate of 21.7% for the US dollar-denominated resecuritization CDO sector does not include the 661 2007 vintage tranches from this sector that were downgraded during 2007.

March 31, 2008

• Arbitrage cash flow CLO performance remained highly stable. Only three tranches from two transactionswere downgraded during 2007, leading to a downgrade rate of 0.16%. An examination of cumulative ratingsperformance from issuance through the end of 2007 for each vintage of arbitrage cash flow CLOs highlightsthe significant long-term stability of this sector. One statistic worth noting is that only one of the 589 arbi-trage cash flow CLO tranches assigned a rating of Aaa at issuance has ever been downgraded. Thistranche was subsequently upgraded to its initial rating of Aaa two years later. Another significant point isthat only one arbitrage cash flow CLO tranche from the 2001 through 2006 vintages has ever been down-graded since issuance — a Ba2 tranche from a 2001 vintage transaction.

• Arbitrage cash flow CBOs, which underwent 37 downgrades in 2006, saw a decrease in downgrade actionsto 14 tranches in eight transactions during 2007, consistent with the historically low level of corporatedefaults. As a result, the downgrade rate for this sector was only 3.1% for the year.

• Downgrade rates in 2007 for most other CDO sectors reviewed in this report were fairly comparable to thoseobserved for 2006.

• The historical average one-year downgrade rate through 2007 for a given CDO sector was generally lowerthan that observed in last year's study, with the only notable exception being the US dollar-denominated rese-curitization sector.2 This sector's average one-year downgrade rate increased sharply to 12.7% from 5.6%.3

• 176 tranches in 98 CDOs were upgraded, a 16% decrease from the 2006 levels of 210 tranches upgraded in125 CDOs. The two synthetic arbitrage CDO sectors combined, followed by resecuritization CDOs and arbi-trage cash flow CBOs topped the list of upgrades. Together, these categories constituted 76% of upgradedtranches.

• The number of withdrawn ratings was significant at 731 tranches in 2007, up from 627 tranches in 2006 and409 tranches in 2005. Withdrawn ratings have typically been the result of the maturity or calling of notes ona scheduled call date and have generally not been the direct result of stress or default.

• 2007 one-year downgrade rates for four of the largest five CDO sectors were typically more favorable than2007 one-year downgrade rates for corporate securities. Resecuritization CDOs were the key exception tothis observation. When all 15 CDO categories are combined into one category and its 2007 downgrade per-formance is compared to that of corporate securities, the CDO category shows higher downgrade rates.This outcome is in sharp contrast to that observed in 2006 and is attributable, primarily, to the severe nega-tive ratings performance of the US dollar-denominated resecuritization CDO sector.

• When year-to-date 2008 downgrade actions and the composition of Moody's-rated CDOs on review fordowngrade as of mid-February are examined together, US dollar-denominated resecuritization CDOs arepredominant.

BRIEF REVIEW OF 2007 RATING ACTIONSFigure 1 summarizes CDO downgrade activity for 2007.4 During the year, Moody's downgraded 1,448 tranchesin 515 CDOs. This volume of downgrade actions, the vast majority of which was attributable to resecuritizationCDOs, was nine times greater than in 2006, when 155 tranches in 113 CDOs were downgraded. Furthermore,regarding transactions for which one or more tranches was downgraded, the average number of tranchesdowngraded per deal grew to 2.8 in 2007 from 1.4 in 2006.

2 For an explanation of historical average one-year transition rates, see the section of this report titled "Approach to the Data."3 Because the historical average one-year downgrade rate relies, in part, on the 2007 one-year downgrade rate, it does not include rating actions

taken during 2007 on 2007 vintage transactions. See Footnote 1 for further explanation.4 Downgrade activity is analyzed for CDO notes structured in the United States and in Europe. The terms "US dollar" and "US dollar-denominated" are

used interchangeably throughout this report, as are the terms "non-US dollar" and "non-US dollar-denominated." The vast majority of CDOs that are non-US dollar-denominated are rated in Europe. For most CDO categories, the vast majority of CDOs that are US dollar-denominated are rated in the US. One exception to this statement is the US dollar-denominated synthetic arbitrage CDO category, where a significant number of deals are rated in Europe.Any tranche whose rating was withdrawn during 2007 would be included in Figure 1 or Figure 2 if its rating was also downgraded or upgraded, respectively, during 2007.For purposes of this study, Moody's treats multiple rating actions during the course of the year as one action. Furthermore, pari passu tranches are treated as one tranche. Moody's does not include rating changes of "shadow ratings" of wrapped tranches in its statistics.For information regarding CDOs backed primarily by CMBS securities, which are not included in this study, see Moody's Special Report "US CREF 4Q 07: Improving Loan Quality Helps Counter Weaker Fundamental Outlook," published February 1, 2008, as well as comparable reports for pre-ceding quarters.

2 • Moody’s Investors Service Credit Migration of CDO Notes, 1996 - 2007, for US and European Transactions

http://www.moodys.com/cust/getdocumentByNotesDocId.asp?criteria=PBS_SF122515


US Dollar Resecuritization CDOs Contributed to 92% of 2007 Downgrades

US dollar-denominated resecuritizations underwent 1,331 downgrades in 2007. As Figure 1 indicates, thisstress came nearly exclusively from 2006 and 2007 vintage transactions. Downgrade actions for the 2000through 2005 vintages of resecuritizations accounted for only 6% of 2007's total number of downgrade actionsfrom this category. Figure 8 and Figure 9, which appear later in this report, show that negative ratings pressurefor the 2006 and 2007 vintages persists and that the number of downgrade actions for the 2005 vintage arelikely to increase substantially in 2008.

In prior years, the negative rating actions suffered by the resecuritization CDO sector had been driven largely bytheir exposure to ABS categories such as manufactured housing, aircraft leasing, and franchise loans. In con-trast, the vast majority of rating actions taken in 2007 were the result of heavy exposure to 2006 and 2007 vin-tage subprime RMBS securities.

Figure 1

Moody's CDO Downgrades by Deal Type and Vintage for US and European MarketsJanuary 1, 2007 to December 31, 2007

(pari passu tranches treated as one)

Deal Type/Vintage 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Total

Resecuritizations US $ Deals 3 9 10 8 9 9 216 188 452Tranches 4 13 15 16 14 12 596 661 1331Resecuritizations non-US $ Deals 2 6 1 1 6 16Tranches 5 9 1 1 15 31Market Value US $ Deals 1 1 2 3 1 8Tranches 1 2 7 9 3 22Synthetic Arb. non-US $ Deals 2 1 1 1 1 2 8Tranches 2 1 3 3 8 2 19Synthetic Arb. US $ Deals 1 3 8 3 1 16Tranches 1 3 9 3 1 17ACF CBO US $ Deals 2 2 3 1 8Tranches 2 3 8 1 14SME non-US $ Deals 1 3 4Tranches 1 7 8ACF CLO US $ Deals 2 2Tranches 3 3B/S Cash Flow US $ Deals 1 1Tranches 3 3Totals: Deals 1 2 7 13 13 12 20 22 227 198 515Tranches 3 2 10 22 18 23 31 33 624 682 1448

Credit Migration of CDO Notes, 1996 - 2007, for US and European Transactions Moody’s Investors Service • 3

Non-US Dollar Resecuritization CDOs Accounted for Small Fraction of 2007 Downgrades

Non-US dollar-denominated resecuritization CDOs accounted for only 2% of 2007's CDO downgrades. Abouthalf of the 31 actions from this sector were on transactions from the 2007 vintage, which suffered downgradesbecause of their significant exposure to US subprime RMBS securities. Such exposure was either the result ofdirect investment in such RMBS securities or the result of investment in resecuritization CDOs that, in turn, hadheavy concentrations in such RMBS securities. The remaining 16 downgrade actions were on the 2003through 2006 vintages but were concentrated in the 2004 vintage. Downgrades of the nine tranches from six2004 vintage deals were largely the result of general deterioration in portfolio credit quality.

The differences in performance during 2007 between the US dollar-denominated resecuritization CDO sectorand its non-US dollar-denominated counterpart were driven by more than one factor. The US dollar sector isnearly eight times as large as the non-US dollar sector, as measured by the size of their respective 2007cohorts. Based on this alone, we would expect the raw count of downgrade actions to differ.

Nonetheless, the two sectors’ downgrade rates, which place the number of actions in the context of the num-ber of tranches outstanding, were also different. Much of this difference is due to the fact that a significant por-tion of the US dollar transactions outstanding is comprised of 2006 vintage deals. These deals are heavilyexposed to subprime RMBS securities. In contrast, exposure to US subprime RMBS securities is less prevalentwithin the non-US dollar resecuritizations. Many of these CDOs were structured to include other types ofassets such as non-US dollar denominated ABS securities, including European RMBS and CMBS securities,and synthetic CDO securities backed by investment-grade corporate obligors.

Synthetic Arbitrage Corporate CDOs Experienced Mild Decrease in Downgrade Volume

Credit performance of most synthetic arbitrage transactions is driven by exposure to corporate securities. Therelatively stable performance of both US dollar and non-US dollar denominated transactions in this categoryduring 2007 is consistent with the historically low level of global corporate defaults exhibited during the year.Downgrade actions in the two synthetic arbitrage CDO sectors combined dropped slightly to 36 tranches in 24transactions in 2007 from 45 tranches in 35 transactions in 2006.

Downgrades during 2007 for the non-US dollar synthetic arbitrage CDO category were limited to 19 tranchesfrom 8 transactions. Only one of the 19 tranches had been downgraded previously. As Figure 1 indicates, the2007 actions for this category were distributed across a range of vintages, with the 2006 vintage accounting fora significant portion of the total. Eight tranches from one 2006 deal saw their ratings decline one rating subcat-egory. These downgrades were the result of credit migration in the underlying pool of corporate securities.

Downgrades of US dollar-denominated synthetic arbitrage CDOs affected only 17 tranches from 16 transac-tions. As was true of the non-US dollar subcategory, negative rating actions were distributed across a range ofvintages. For the US dollar subcategory, the 2005 vintage contributed half of the actions. Only five of the 17tranches downgraded had been downgraded in prior years.

US Dollar-Denominated Arbitrage Cash Flow CBOs Exhibited Drop in Downgrade Volume

Historically low corporate default rates during 2007 had a positive influence on the performance of arbitragecash flow CBOs. Only 14 tranches from this category were downgraded during 2007, as compared to 37tranches downgraded in 2006. As Figure 1 indicates, most of the 2007 actions came from the 2001 vintage.Eight of the 14 tranches downgraded had been downgraded in previous years.

US Dollar-Denominated Arbitrage Cash Flow CLOs Remained Highly Stable

Only three tranches from two 2000 vintage arbitrage cash flow CLO transactions were downgraded in 2007.None had been downgraded previously. Two of the three were initially rated Ba3. One fell one subcategory toB1 and the second declined three subcategories to B3. The third tranche downgraded dropped from Baa2 toBaa3. As was true for the synthetic arbitrage CDO and arbitrage cash flow CBO sectors, arbitrage cash flowCLOs benefited significantly from 2007's benign corporate default environment.


Market Value CDO Downgrades Driven by Liquidity Issues Following Years of Stability

During 2007, 22 tranches from eight market value CDOs were downgraded. None had been downgraded pre-viously. All of the affected transactions were largely backed by highly rated US government agency and non-agency prime RMBS securities. While the credit quality of these underlying securities remained highly stable,their market values were negatively affected by the general turmoil and illiquidity in the credit markets.

Downgrades Minimal for Two Categories, Non-Existent for Several Others

Downgrade activity for US dollar-denominated balance sheet cash flow CDOs and for non-US dollar-denomi-nated SME CLOs was quite low in 2007, as Figure 1 indicates. Several CDO categories saw no downgrades in2007. These include US dollar-denominated SME CLOs, non-US dollar balance sheet cash flow CBOs, non-US dollar and US dollar-denominated balance sheet synthetic CDOs, investment-grade arbitrage cash flowCBOs, emerging markets CDOs, and TRUPS CDOs.5

Upgrade Activity Fell 16% from 2006, Withdrawn Ratings Rose 17%

As Moody's has noted previously, upgrades in actively managed CDOs tend to be relatively infrequent, giventhe nature of these instruments. Upgrades typically result from a substantial delevering or from improvementsin the structure or the collateral that the transaction is required to maintain. The tranches upgraded in 2007represented only about 3% of all non-Aaa rated tranches outstanding at the beginning of the year.6

Of 2007's 176 upgrades, 74% ended 2007 with ratings higher than those issued at closing, and 9% reflectedratings being restored to closing-date levels.7 Roughly 32% of the upgraded tranches began 2007 with ratingsbelow those issued at closing. In half of such cases, the ratings in effect at the end of 2007 remained lowerthan the tranches' initial ratings. The remainder was divided close to evenly between tranches upgraded totheir initial ratings and tranches upgraded to higher than their initial ratings.

Regarding the composition of CDO upgrades, as shown in Figure 2 below, three categories constituted two-thirds of the actions. The two synthetic arbitrage sectors contributed half of the 176 upgrades, while the 29 USdollar resecuritization CDO tranches upgraded accounted for 16% of the total. All but one of the resecuritiza-tion CDO upgrades occurred during the first half of 2007. As Moody's noted in its mid-2007 CDO rating actionreport, these upgrades were of earlier vintage transactions, many of which were backed by static pools of earlyvintage RMBS, CMBS and other ABS tranches and had undergone significant delevering.8 Information aboutthe magnitude of upgrades is available in Tables 1 - 15 of the Appendix, which show 2007 one-year rating tran-sitions by CDO type.

5 While no TRUPS CDOs were downgraded during 2007, numerous REIT TRUPS CDOs were placed on review for downgrade. More information about these actions is provided in Figure 9.

6 Of the 8,012 tranches outstanding at the beginning of 2007, 2,661 were rated Aaa and, therefore, not capable of being upgraded from their begin-ning-of-year ratings. Because 14 of the 176 tranches upgraded came from the non-US dollar-denominated emerging markets CDO sector, which is not included in the count of CDO tranches outstanding at the beginning of the year, the 14 tranches are excluded from the calculation of the 3% upgrade rate.

7 The 2007 upgrade count, the 74% figure, and the 9% figure cited here include tranches whose ratings were withdrawn in 2007 but were upgraded during 2007 sometime before the withdrawal action.

8 See Moody's Special Report "Rating Actions in the U.S. CDO Market: Year-to-Date Review - June 2007," published August 2007.



As shown in Figure 3, 731 tranches from 290 US and European CDOs had their ratings withdrawn in 2007 — a17% increase above the number of withdrawn ratings observed during 2006. Withdrawn ratings have typicallybeen the result of the maturity or calling of the notes on a scheduled call date and have generally not been thedirect result of stress or default.9

Figure 2

Moody's CDO Upgrades by Deal Type and Vintage for US and European MarketsJanuary 1, 2007 to December 31, 2007


Deal Type/Vintage 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Total

Synthetic Arb. non-US $ Deals 2 14 6 4 4 30Tranches 4 27 9 8 16 64Resecuritizations US $ Deals 1 2 5 4 3 1 16Tranches 3 5 9 4 5 3 29Synthetic Arb. US $Deals 10 4 3 1 18Tranches 16 4 3 1 24ACF CBO US $Deals 3 4 4 1 12Tranches 3 5 8 1 17Emerging Markets non-US $ Deals 1 1 1 3Tranches 4 9 1 14ACF CLO US $ Deals 1 3 3 2 1 10Tranches 1 3 3 4 2 13B/S Cash Flow US $Deals 1 1Tranches 3 3Emerging Markets US $Deals 1 1 2Tranches 1 2 3Resecuritizations non-US $ Deals 1 1 1 3Tranches 3 1 1 5ACF IG CBO US $Deals 1 1Tranches 2 2ACF CBO non-US $Deals 1 1Tranches 1 1Bank and Insurance TRUPS CDOsDeals 1 1Tranches 1 1Totals: Deals 4 1 10 10 11 30 13 4 7 6 2 98Tranches 4 1 15 17 21 52 18 6 14 26 2 176

9 Nonetheless, some tranches whose ratings were withdrawn realized losses upon redemption. For more information about losses on CDO securi-ties, see Moody's Special Comment "Default & Loss Rates of Structured Finance Securities: 1993-2006," published April 2007 and Moody's upcoming report on structured finance default and loss rates.Also, holders of notes issued by CDOs that are in default and are liquidated may also experience losses. Following liquidation, ratings of these tranches would be withdrawn. See Moody's Special Comment "Understanding the Consequences of ABS CDO Events of Default," published Jan-uary 7, 2008.




A review of ratings before withdrawal provides insight into the credit performance of these notes. Immediatelyprior to withdrawal, roughly 80% of the 731 tranches held ratings that were either the same or better than theirratings at issuance. Approximately 4% of the tranches whose ratings were withdrawn were rated Caa1 orbelow prior to the withdrawal action. It is important to note, however, that several of these tranches were origi-nally rated B1 or lower.

Figure 3Moody's CDO Ratings Withdrawn by Deal Type and Vintage for US and European Markets

January 1, 2007 to December 31, 2007(pari passu tranches treated as one)

Deal Type/Vintage 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 TotalSynthetic Arb. US $Deals 1 2 4 56 7 3 4 4 81Tranches 3 2 15 130 8 6 4 7 175ACF CLO US $Deals 6 4 4 9 4 1 28Tranches 15 14 17 33 20 1 100Synthetic Arb. non-US $ Deals 1 2 26 4 1 2 6 3 45Tranches 3 4 54 9 1 2 6 3 82ACF CBO US $Deals 1 3 11 6 4 2 27Tranches 3 9 23 15 17 8 75Resecuritizations US $ Deals 5 2 5 6 4 3 5 30Tranches 8 6 12 23 8 3 5 65Resecuritizations non-US $ Deals 1 8 4 5 3 3 24Tranches 5 27 7 13 3 7 62B/S Synthetic non-US $ Deals 1 1 6 3 11Tranches 10 4 29 9 52Market Value US $ Deals 1 1 2 1 1 3 2 11Tranches 6 5 6 5 3 14 7 46ACF IG CBO US $Deals 1 2 4 2 9Tranches 2 6 12 8 28B/S Cash Flow US $ Deals 4 1 5Tranches 12 1 13ACF CLO non-US $ Deals 2 3 1 6Tranches 4 7 1 12ACF CBO non-US $ Deals 1 2 1 4Tranches 1 4 3 8Emerging Markets US $Deals 1 1 1 3Tranches 1 1 4 6Bank and Insurance TRUPS CDOsDeals 2 3 5Tranches 2 3 5B/S Cash Flow non-US $ Deals 1 1Tranches 2 2Totals:Deals 1 1 7 18 25 26 126 32 15 13 18 8 290Tranches 3 1 21 43 67 86 332 84 30 15 32 17 731


CDO TRANSITION RATES — STUDY RESULTS

Approach to the Data

Moody's annual CDO transition study is based on Moody's ratings of CDO notes rated in the United States andEurope. Last year's study examined one-year rating transitions for the 2006 cohort of CDOs, that is, the 4,927rated CDO notes outstanding as of January 1, 2006. In this study, we analyze one-year rating transitions for the2007 cohort, which consisted of 8,012 rated CDO notes outstanding as of January 1, 2007.10

The 2007 cohort is broken down into various CDO types. Figure 4 lists the CDO types analyzed and providesthe size of each type included in the 2007 cohort, as well as in all past cohorts as far back as 1996. Note thatthree CDO categories have been added to this year's annual CDO rating transition report — REIT TRUPSCDOs, bank and insurance TRUPS CDOs, and non-US dollar-denominated resecuritization CDOs.

For each CDO sector and cohort included in Figure 4, Moody's calculated a one-year transition matrix — i.e.,one matrix for each cell other than those labeled "n.a." (a total of 113 one-year transition matrices). Transitionmatrices for the 2007 cohort are provided in Tables 1 - 15 of the Appendix, where each table describes a spe-cific CDO sector. Moody's also constructed a historical weighted average one-year transition matrix for eachCDO category. These matrices are shown in Tables 16 - 27 of the Appendix. To construct a historical weightedaverage one-year transition matrix for a given CDO sector, Moody's averaged the historical one-year transitionrates for each cohort by weighting each year's transition rates by the number of ratings at each rating level.

In this study, as in past CDO transition studies, we treat pari passu tranches as one tranche and incorporateonly the public rating of insured CDO tranches (typically Aaa), rather than the underlying "shadow" ratings.Because there were no downgrades of CDO guarantors through the end of 2007, insured CDO tranches expe-rienced no downgrades.

Withdrawn ratings are included in the transition matrices in the Appendix. As already noted, while there may besome exceptions, withdrawals have typically been the result of the maturity or calling of the notes on a sched-uled call date, rather than the result of stress or default.

10 Note that rated equity and combination notes are not included in this study. Tranches wrapped in the primary market are included at their public rat-ings — typically at Aaa.

Figure 4

CDO Note Ratings Outstanding as of Beginning of Year(pari passu tranches treated as one tranche)

COHORTCDO Type 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007Resecuritizations US $ n.a. n.a. n.a. n.a. 16 86 199 369 630 1,015 1,605 3,081 ACF CLO US $ 5 17 33 85 159 266 337 492 686 940 1,272 1,917 Synthetic Arb. US $ n.a. n.a. n.a. n.a. n.a. n.a. 81 325 408 491 638 906 ACF CBO US $ 47 74 121 195 372 448 542 590 586 578 530 450 Synthetic Arb. non-US $ n.a. n.a. n.a. n.a. n.a. n.a. 106 232 356 318 385 426 Resecuritizations non-US $ n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 400 Bank and Insurance TRUPS CDOs n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 231 B/S Synthetic non-US $ n.a. n.a. n.a. n.a. 25 103 152 201 147 212 124 167 Market Value US $ n.a. n.a. n.a. 22 53 109 109 117 100 82 83 134 ACF Investment-Grade CBO US $ n.a. n.a. n.a. 6 20 50 84 97 93 90 88 81 REIT TRUPS CDOs n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 78 B/S Cash Flow non-US $ n.a. n.a. n.a. n.a. 27 43 64 77 55 75 56 43 B/S Cash Flow US $ n.a. n.a. 11 41 71 88 94 114 92 70 67 38 Emerging Markets US $ 4 11 27 40 62 72 81 87 72 53 45 32 B/S Synthetic US $ n.a. n.a. 12 33 41 79 98 106 56 42 34 28 Total 56 102 204 422 846 1,344 1,947 2,807 3,281 3,966 4,927 8,012


2007 Rating Transition Rates By CDO TypeIn this section, we review one-year transition rates for the various CDO types. The transition matrices support-ing these observations are provided in the 2007 cohort tables in the Appendix (Tables 1 - 15).11

US Dollar Resecuritization CDOs: Significant Climb in Downgrade Rate

The overall downgrade rate for the US dollar-denominated resecuritization CDO category jumped to 21.7% in2007 from 2.8% in 2006. Because the downgrade rates Moody's describes in this section of the study focuson one-year rating changes, the only tranches included in the numerator and denominator are those outstand-ing at the beginning of 2007 and thus part of the 2007 cohort. This approach to calculating one-year down-grade rates has been consistently applied in prior CDO rating transition studies that Moody's has published. Asa result of how the calculation is done, the 21.7% rate excludes the 661 US dollar resecuritization CDOtranches identified in Figure 1 that were both issued and downgraded in 2007. If this downgrade rate calcula-tion were revised to add the 661 downgraded 2007 vintage tranches to the numerator and to add all thetranches from this sector that were rated in 2007 to the denominator, then this revised downgrade rate wouldbecome 30.3%.

Figure 5 below summarizes some of the information provided in Table 3, the one-year rating transition matrix forthe US dollar resecuritization CDO sector. Data for some of the largest investment-grade rating categories arehighlighted. Roughly 8% of tranches that began 2007 rated Aaa were downgraded during the year. ThoseAaa-rated tranches that underwent a downgrade during 2007 saw their ratings decline by an average of nearlyeight subcategories. In fact, 28 of the 88 Aaa tranches downgraded fell to below investment-grade.

Figure 5 also shows that for US dollar resecuritization CDO tranches that began 2007 rated Aa2, 17.3% weredowngraded during the year. The severity of the rating changes for those Aa2 tranches that were downgradedwas similar to that exhibited by the Aaa tranches downgraded. On average, Aa2-rated tranches fell by 7.6subcategories, and 29 of the 79 downgrades resulted in below-investment-grade ratings.

Downgrade severity for the A2 and Baa2 rating categories was similar. The average rating change was 7.0subcategories for the former and 6.6 subcategories for the latter. Also, the portion of each rating category thatwas downgraded was 38% for the former and 37% for the latter.

Non-US Dollar Resecuritization CDO Downgrade Rate: Significantly Lower than US Dollar Resecuritiza-tion Sector’s Rate

Of the 400 non-US dollar-denominated resecuritization tranches outstanding at the beginning of 2007, 16underwent downgrades leading to a 4% downgrade rate. As Figure 1 indicates, an additional 15 tranches fromthe 2007 vintage also suffered downgrades. As explained above, these 2007 vintage tranches are not includedin the 2007 cohort used to derive Table 15 of the Appendix. Downgrade severity for the 16 tranches thatunderwent negative actions was typically limited to a one or two rating subcategory movement.

11 The downgrade and upgrade rates cited in this section of the report rely on a comparison of ratings as of January 1, 2007 and December 31, 2007. Any ratings downgrade or upgrade that was subsequently followed by a ratings withdrawal during the year will not be captured in these downgrade or upgrade rates.

Figure 5

US Dollar-Denominated Resecuritization CDO Sector Downgrade SummaryRating Changes from January 1, 2007 to December 31, 2007

Rating as of 1/1/07

Average # of Rating Subcategory Movements *

# of Ratings Outstanding as of 1/1/07 % Downgraded

Aaa 7.9 1,131 7.8%Aa2 7.6 456 17.3%Aa3 7.9 128 26.6%A2 7.0 336 37.5%A3 6.4 161 21.1%Baa2 6.6 400 36.8%

* Only those tranches that were downgraded are included in this calculation.


Synthetic Arbitrage Corporate CDOs: Downgrade Rates Remained Low, Withdrawal Rates Significant

Credit performance of US dollar-denominated synthetic arbitrage CDOs, as described in Table 4, was relativelystrong. The benign 2007 downgrade rate of 1.8% was lower than the 5.0% downgrade rate exhibited in 2006.Furthermore, it was essentially the same as the 2007 upgrade rate of 1.7%. In comparing downgrades toupgrades, the only negative outcome worth noting is that half of the 16 downgrades were of three or more rat-ing subcategories, while nearly all upgrades were of one rating subcategory. Withdrawn ratings were significantfor this CDO sector and were distributed somewhat proportionately across most rating categories. The five-year maturities of many synthetic arbitrage CDOs assures a fairly steady flow of withdrawn ratings from a givenvintage each year.

The non-US dollar-denominated synthetic arbitrage CDO sector performed similarly to its US dollar-denomi-nated counterpart during 2007. The downgrade rate of 3.8%, although a bit higher than the 1.8% rate experi-enced by the US dollar sector, was quite low. Also, the withdrawal rate of 18.5% for the non-dollar categorywas very close to the 19.3% withdrawal rate exhibited by the dollar-denominated transactions. The non-USdollar sector's upgrade rate of 11.3%, however, was much stronger than the 1.7% upgrade rate of the US dol-lar category noted above.

Arbitrage Cash Flow CBOs (US Dollar): Downgrade and Upgrade Rates Fell Relative to 2006

The downgrade rate for arbitrage cash flow CBOs dropped to 3% in 2007 from 7% in 2006, as the number ofdowngraded tranches fell to 14 from 37. Just over half of the downgrades affected tranches which began theyear rated below investment-grade. Downgrade severity ranged from one to six rating subcategory move-ments, with two and four subcategory movements the most prevalent.

During 2007, upgrade volume in the arbitrage cash flow CBO sector was slightly higher than downgrade vol-ume, resulting in an upgrade rate of 3.8%. As with downgrade actions, upgrade actions were nearly evenlydivided between tranches that began the year rated below investment-grade and those that began the yearrated investment-grade. Four of the 17 upgrades involved tranches that saw their ratings move from belowinvestment-grade to investment-grade.

The number of withdrawn ratings attributable to arbitrage cash flow CBOs fell to 75 during 2007 from 86 in2006. Nonetheless, this sector's withdrawal rate of 16.7% was essentially unchanged, since the number oftranches outstanding declined at a rate similar to the drop in withdrawn ratings. The Aaa rating categoryaccounted for 31% of all arbitrage cash flow CBO rating withdrawals during 2007, not a surprising outcomegiven that Aaa-rated tranches constituted 24% of all the ratings outstanding in this CDO sector at the begin-ning of the year.

Arbitrage Cash Flow CLOs (US Dollar): Downgrade Rate Close to 0%, Withdrawals Prevalent

Only three, or 0.16%, of the 1,917 tranches of arbitrage cash flow CLOs outstanding as of January 1, 2007underwent a downgrade during the year. One was rated Baa2 at issuance and the other two were originallyrated Ba3. Downgrade severity for each was mild: two tranches moved down by one rating subcategory andone saw its rating drop three subcategories. None of the three tranches affected had been downgradedpreviously.

The number of upgraded CLO tranches was modest. Twelve upgraded tranches led to an upgrade rate of0.6%. Most were improvements of one or two rating subcategories.

As was true in 2005 and 2006, withdrawn ratings dominated the list of rating actions for the arbitrage cash flowCLO category in 2007. The 100 withdrawn ratings from this sector reflected a withdrawal rate of 5.2%.

REIT TRUPS CDOs Exhibited Stress, Bank and Insurance TRUPS CDOs Stable

Table 13 and Table 14 provide one-year rating transition data for REIT TRUPS CDOs and bank and insuranceTRUPS CDOs, respectively. As already mentioned, Moody's is including these two CDO categories in itsannual CDO rating transition study for the first time.


Regarding the 78 tranches of REIT TRUPS CDOs outstanding at the beginning of 2007, none underwent a rat-ings upgrade, downgrade, or withdrawal during the year. It is important to note, however, that 30 tranches in 11REIT TRUPS-related CDOs were placed on review for downgrade during the second half of 2007.12 Figure 9,which provides more detail on the vintages of these transactions, shows that these tranches remained on reviewfor downgrade as of February 11, 2008.

Performance of TRUPS CDOs backed by bank and insurance TRUPS was stable. One tranche was upgradedfrom Aa1 to Aaa as a result of the upgrade of Assured Guaranty, the financial guarantor of that tranche. Fivetranches that began 2007 rated Aaa saw their ratings withdrawn in conjunction with a full repayment of theiroutstanding principal balances and all accrued interest. Additionally, five tranches from five CDOs backed pri-marily by bank trust preferred securities were placed on review for upgrade. More detail on the vintages of thedeals affected is provided in Figure 10.

Downgrade Rates at 0% for Five CDO Categories

The downgrade rate for all but two of the remaining CDO categories was 0%. The market value CDO sector,whose downgrade rate was 7.5%, and the US dollar balance sheet cash flow sector, whose three downgradesresulted in a downgrade rate of 7.9%, accounted for the two exceptions.

Upgrade counts were zero to minimal for most of the seven remaining CDO categories. The emerging marketsCDO sector's upgrade rate of 9.4% was the result of three upgrades. The US dollar-denominated balancesheet cash flow sector also saw three upgrades, leading to a 7.9% upgrade rate, and the investment-gradearbitrage cash flow CBO sector underwent two upgrades, resulting in an upgrade rate of 2.5%.

The investment-grade arbitrage cash flow CBO sector experienced a 35% withdrawal rate during 2007. Othersectors with similar, albeit slightly lower, withdrawal rates included US dollar balance sheet cash flow, non-USdollar balance sheet synthetic, and market value CDOs.

HISTORICAL AVERAGE TRANSITIONS BY CDO TYPE — WEIGHTED AVERAGE ONE-YEAR DOWNGRADE RATESIn this part of the study, we discuss the performance of the various CDO sectors in light of their historical aver-age one-year transition rates. To construct a historical weighted average one-year transition matrix for a givenCDO sector, Moody's averaged the historical one-year transition rates for each cohort by weighting each year'stransition rates by the number of ratings at each rating level.

For long-standing sectors, such as arbitrage cash flow CBOs and arbitrage cash flow CLOs, these averagetransition rates incorporate twelve years of history, whereas for newer sectors, such as synthetic arbitragetransactions, six years of performance are captured. The transition matrices supporting these observations areprovided in the Appendix (Tables 16 - 27).13

US Dollar Resecuritization CDOs: Average One-Year Downgrade Rate Jumped Significantly from 2006 Level

Given that nearly 22% of resecuritization CDO tranches outstanding at the beginning of 2007 were downgradedduring the year, the historical average one-year downgrade rate for this sector jumped to 12.7% from 5.6% in2006. The 2007 rate is the highest average one-year downgrade rate that the resecuritization sector hasundergone. The previous peak of 8.3% occurred in 2004 when the resecuritization CDO category consistedprimarily of transactions supported by a broad variety of ABS asset types. At that time, the main driver of theweakness was exposure to manufactured housing securities and aircraft leasing transactions, two ABS catego-ries that were undergoing protracted and severe stress.

12 Regarding the 11 REIT TRUPS CDOs whose tranches Moody's placed on review for downgrade, it is generally the case that Moody's rated only the more senior tranches in the capital structure. Had Moody's rated the more junior tranches, which have experienced more significant deterioration, the number of tranches placed on review for downgrade would have been greater than 30, and it is likely that some downgrade actions would already have occurred.

13 Because this report represents the first year that Moody's is including one-year rating transition data for REIT TRUPS CDOs, bank and insurance TRUPS CDOs, and non-US dollar-denominated resecuritization CDOs (as provided in Table 13, Table 14, and Table 15), no one-year average rating transition data are provided for these three CDO types. In next year's annual CDO rating migration report, the 2007 rating transition data presented in this report for these three CDO types will be combined with 2008 rating transition data to produce average one-year rating transition matrices.


Synthetic Arbitrage Corporate CDOs: Average One-Year Downgrades Improved Average one-year downgrade rates for the two synthetic arbitrage CDO sectors peaked in 2002 and havedeclined steadily over the subsequent five years. In 2007, the non-US dollar subcategory's average one-yeardowngrade rate fell to 12.6% from 15.3% in 2006. Similarly, the US dollar synthetic arbitrage CDO category's2007 average one-year downgrade rate of 7.2% represented a strong improvement from the 9.7% average rateobserved in 2006.

Arbitrage Cash Flow CBOs vs. Arbitrage Cash Flow CLOs: Average Performance over Twelve Years Remained Divergent

The performance of arbitrage cash flow CBOs has been fairly benign over the past few years, resulting in asteady decline in the average one-year downgrade rate since 2004. The 2007 historical average one-yeardowngrade rate for arbitrage cash flow CBOs of 14% reflects a gradual improvement over the last four years,as the average rates were 20% in 2004, 17% in 2005, and 15% in 2006. Nonetheless, despite the increasedstability Moody's has observed, the sector's 2007 historical average one-year downgrade rate was the highestof the 12 average one-year downgrade rates this study analyzed.

The arbitrage cash flow CLO sector, in contrast, has exhibited highly consistent performance over the last sev-eral years, and its historical average one-year downgrade rate, when compared to that of the other 11 CDOsectors, typically has been among the lowest. Furthermore, this sector's historical average one-year down-grade rate of 1.3% in 2007 was even lower than the 1.9% level observed in 2006.

Synthetic Balance Sheet CDOs: Improved Average One-Year Downgrade Rates

Both US dollar and non-US dollar synthetic balance sheet sectors saw fairly high downgrade rates in 2001 and2002 as a result of the poor credit performance of the investment-grade corporate market. Given the signifi-cantly reduced number of downgrades experienced by these transactions over the past few years, including nodowngrades during the last three years, their average one-year downgrade rates have shown continued mod-est improvement since 2002.

Arbitrage Cash Flow Investment-Grade CBOs: Average One-Year Downgrade Rate Improved Slightly

The average one-year downgrade rate for arbitrage cash flow investment-grade CBOs improved to 11.5% in2007 from 13.2% in 2006. This improvement was driven by the fact that no investment-grade arbitrage cashflow CBOs were downgraded during 2007. The fairly benign credit trends within the investment-grade corpo-rate bond market that Moody's has observed during the past few years have benefited the investment-gradeCBO sector.

Emerging Markets CDOs: Average One-Year Downgrade Rate Remained Low

Given that the only rating actions taken on emerging markets CDOs during 2007 were positive, i.e. either anupgrade or withdrawal following repayment in full, the average one-year downgrade rate improved slightly to3.6% from an already low level of 3.8% in 2006.

Market Value CDOs: Average One-Year Downgrade Rate Increased but Remained Low

The increase in downgrades within the market value CDO sector in 2007 led to an increase in the average one-year downgrade rate for this category to 2.2% from 1.2% in 2006. As noted earlier in this report, prior to 2007,downgrades within the market value CDO category had not occurred since 2004.

Balance Sheet Cash Flow CDOs: Average One-Year Downgrade Rates Remained Very Low

The steady performance of balance sheet cash flow deals continued in 2007, thus leading to the maintenanceof low average one-year downgrade rates for both the US dollar and non-US dollar subcategories of this sector.The average one-year downgrade rate for each of these CDO types was 1.6% in 2007.


CUMULATIVE DOWNGRADE TRANSITION RATES FOR ARBITRAGE CASH FLOW CLOs — NEW TABLES HIGHLIGHT STABLE PERFORMANCE OF CLO SECTORIn response to requests by market participants about the historical, cumulative ratings performance of arbitragecash flow CLOs, Moody's has provided a new type of table in this year's study. The purpose of the new tables isto show, by vintage and original rating category, the percentage of tranches that were ever downgraded to rat-ings below their original ratings and the distribution of the lowest rating ever assigned to a given CLO tranche.

The overall conclusion to be drawn from the tables is that CLO tranche ratings have exhibited a high degree ofstability over a fairly long ratings history. For example, only one of the 589 arbitrage cash flow CLO tranchesoriginally assigned a rating of Aaa has ever been downgraded. It was subsequently upgraded to its initial ratingof Aaa two years later. Furthermore, only one arbitrage cash flow CLO tranche from the 2001 through 2006vintages has ever been downgraded — a Ba2 tranche from a 2001 vintage transaction.

In this section of the report, we summarize some other interesting findings, based on an examination of the newtables and additional information gleaned from Moody's databases. The transition matrices that reflect thesefindings are represented by Tables 28a - 28j of the Appendix.

Only 50 US Dollar Arbitrage Cash Flow CLO Tranches Ever Downgraded — 47 of 50 Attributable to Three Early Vintages

Downgrades of arbitrage cash flow CLOs have been very limited over the course of the CLO market's exist-ence. In fact, only 50 tranches from 28 CLO transactions have ever suffered a downgrade.14 Of these down-grades, 47 were attributable to the 1997, 1998, and 2000 vintages. Twelve of the 50 downgrades weresubsequently followed by upgrades.

A leading cause for the negative actions was significant exposure to high-yield corporate bond collateral over aperiod of severe distress in that market. Below, Moody's highlights the downgrade activity of each of the threevintages, summarizing information from some of the tables in the Appendix and providing additional informationnot found in the tables.

1997 Vintage of Arbitrage Cash Flow CLOs

Table 28a of the Appendix provides information on the historical downgrade severity of 1997 vintage CLOtranches. As a guide to interpreting the information in this table, please refer to the third row of the matrix. Thisrow represents the three CLO tranches rated Aa2 upon their issuance during 1997. Of the three, two werenever downgraded (as indicated by the 66.7% value in the shaded box on the diagonal of the matrix), while theother was downgraded to as low as A1 (as indicated by the 33.3% value in the column labeled "A1.")

It is very important to make clear that these tables do not necessarily reflect the current rating assigned to anygiven tranche. They only represent the lowest ratings ever assigned. Returning to the example of the Aa2tranche downgraded to A1, it is interesting to note that it was subsequently upgraded to Aaa, as was the onetranche originally rated Aa3 and downgraded to A2. Of the other six tranches downgraded, one other — atranche initially rated Baa3 and downgraded to B1 — was later upgraded to a rating higher than its initial level.


Table 28b of the Appendix represents downgrade severity of 1998 vintage CLO tranches. It shows that 25 ofthe 52 tranches that comprise this vintage were downgraded at some point following their issuance. The one1998 vintage Aaa-rated CLO tranche that was downgraded to Aa2 is the only Aaa-rated CLO tranche everrated by Moody's to undergo a downgrade. Furthermore, this tranche was subsequently upgraded to Aaaroughly two years following the downgrade action. Two other tranches from this vintage that were downgradedwere subsequently upgraded — both were initially rated Baa3.


Table 28d of the Appendix details the downgrade severity of 2000 vintage CLO tranches. Of the 14 tranchesdowngraded, five were subsequently upgraded, with four of the five tranches currently rated better than theirratings assigned at their closing dates. Two of the five were upgraded to Aaa.

14 While already mentioned in Footnote 1, it bears repeating that pari passu tranches are treated as one tranche in this study. Also, in this section of the study, Moody's includes as downgraded any tranche that has undergone one or more downgrades to below its initial rating since issuance, regardless of whether or to what extent that tranche was subsequently upgraded.


Seven US Dollar Arbitrage Cash Flow CLO Vintages (1999 Vintage and 2001 through 2006 Vintages) Have Exhibited High Degree of Ratings Stability — Only Three Tranches Ever Downgraded

Examination of Table 28c and Table 28e through Table 28j of the Appendix shows that downgrades acrossthese seven vintages have been limited to two 1999 vintage and one 2001 vintage arbitrage cash flow CLOtranches. The one 1999 vintage Baa2 tranche that was downgraded to Ba2 now maintains a Aa3 rating.None of the other 2,026 tranches from these vintages has ever undergone a downgrade action.

CDO vs. CORPORATE RATING TRANSITIONSPerformance of the corporate debt markets during 2007 generally remained robust, as reflected in several mea-sures of credit quality. Moody's 2007 corporate default and recovery study describes the default rate for spec-ulative-grade issuers and the default rate for all Moody's-rated corporate issuers as at their lowest levels since1981.15 Furthermore, no corporate issuer that began 2007 rated investment-grade defaulted in 2007. TheMoody's study also says that recovery rates for most categories of bonds were higher than or not far below2006 levels and well above historical averages. However, recovery rates on senior secured bank loans werelower than in 2006 and roughly 2.7% below their historical average.

Comparison of 2007 Downgrade Rates

Since Moody's ratings are based on expected loss, Moody's targets its structured finance ratings to exhibit,over time, losses similar to those of corporate ratings. It is important to keep in mind, however, that year-to-year credit rating changes for the two types of securities need not necessarily be comparable. Furthermore,similar to how corporate credit performance varies across industries within a given year, CDO credit perfor-mance varies across sectors in a given year.

Figure 6 highlights data from the 2007 corporate rating transition matrix shown in Table 33 of the Appendixalongside data taken from several CDO sectors' one-year transition matrices, which are also provided in theAppendix. Four of the five CDO sectors highlighted in Figure 6 exhibited lower downgrade rates than corporatesecurities in 2007, despite a few exceptions in some of the rating categories shown. In contrast, the down-grade rate for US dollar resecuritization CDOs was close to three times that of the corporate sector's 7.8%overall downgrade rate. As Figure 6 illustrates, resecuritization CDO downgrade rates were significantly higherfor every rating category included.

When the 15 CDO categories included in this study are collapsed into a single group, as depicted in Table 31 ofthe Appendix and summarized in the "All CDOs" column of Figure 6, it is evident that the downgrade perfor-mance of CDOs was generally worse than that of corporate securities during 2007. This outcome contrastssharply with 2006. The weaker relative performance of the "All CDOs" sector in 2007 is attributable to the poorperformance of US dollar resecuritization CDOs, which accounted for over 90% of 2007 CDO downgrades.

15 See Moody's Special Comment "Corporate Default and Recovery Rates, 1920-2007," published February 2008.

Figure 6

Corporate vs. CDO Transitions in 2007Probability of Downgrade for Selected Credit Ratings*

ACF CBO ACF CLO ResecuritizationsSynthetic Arb.

(US$)Synthetic Arb.

(Non-US$) All CDOs CorporatesAaa 1.2% 0.0% 8.0% 1.3% 0.8% 4.0% 5.1%Aa2 0.0% 0.0% 17.6% 1.9% 0.0% 8.3% 4.6%Baa2 0.0% 0.3% 37.5% 1.5% 0.0% 17.4% 6.0%Baa3 17.6% 0.0% 57.5% 8.6% 0.0% 27.6% 4.2%Ba2 7.7% 0.0% 39.3% 0.0% 25.0% 7.5% 15.4%Ba3 22.2% 12.5% 25.0% 0.0% 0.0% 14.0% 11.2%

* Probability of downgrade is adjusted for withdrawn ratings.


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Comparison of Weighted Average One-Year Transitions — 1996 to 2007

As in past CDO transition studies, Moody's has created a "theoretical" corporate transition matrix in order tocompare one-year average CDO note rating transitions to those of corporate securities. This corporate transi-tion matrix is provided in Table 34. To create it, Moody's weighted each year's one-year corporate transitionrates by the number of CDO ratings outstanding at each rating level at the beginning of that year.

Figure 7 illustrates the historical average one-year performance of several individual CDO sectors, all 15 CDOsectors combined into one category, and corporate securities. Corporate securities outperformed, by a largemargin in some cases, arbitrage cash flow CBOs, resecuritization CDOs, and non-dollar synthetic arbitrageCDOs across almost all rating categories. In contrast, arbitrage cash flow CLOs exhibited consistently betteraverage one-year downgrade rates than corporates, and the relative performance of US dollar synthetic arbi-trage CDOs was moderately more favorable.

As was true in the last four annual studies, when Moody's compared average one-year downgrade rates of the"All CDOs" category to those of corporate securities, the two performed fairly similarly. The most significant dif-ference in performance arose with respect to the Baa3 rating category, in which case corporate securities out-performed CDOs.

In order to create the combined CDO category, we relied on the average one-year transition matrices in Tables16 - 27 and weighted each CDO type's transitions by a factor equal to the number of rated tranches outstand-ing in that CDO sector at the beginning of 2007, divided by the total number of rated tranches outstanding in allCDO sectors at the beginning of 2007. This average transition matrix is provided in Table 32 of the Appendix.

YEAR-TO-DATE 2008 RATING ACTIONSTo evaluate potential credit trends within the CDO market, it is useful to review the downgrades and upgradesthat have occurred thus far in 2008, as well as the composition and sizes of the universe of CDO tranches onreview for downgrade and upgrade.

Downgrades and Downgrade Reviews

The total number of CDO downgrade actions taken between January 1st and February 11th is provided in Figure8. During this period, Moody's downgraded 303 tranches in 80 CDOs. Similar to what Moody's observedregarding CDO downgrades in 2007, US dollar-denominated resecuritization CDOs constituted nearly 90% ofthe year-to-date downgrade actions, and the 2006 and 2007 vintages from this sector were again the primarycontributors to the total number of actions. Regarding market value CDOs, most of the 12 tranches down-graded during 2008 had been downgraded in 2007 as well. None of the 14 synthetic arbitrage CDO tranchesdowngraded this year had been downgraded previously. Downgrade severity for each was quite mild — mostfell one rating subcategory and none declined by more than two subcategories.

Figure 7

Historical Average One-Year Downgrade RiskComparison of 1 Year Average Rating Transitions, 1996-2007

Probability of Downgrade*

ACF CBO ACF CLO Resecuritizations **Synthetic Arb.

(US$)***Synthetic Arb. (non-US$)*** All CDOs Corporates****

Aaa 4.8% 0.1% 4.5% 3.8% 5.2% 3.1% 4.0%Aa2 15.2% 0.9% 10.5% 7.8% 12.6% 8.0% 6.2%Baa2 19.7% 0.9% 20.5% 9.4% 14.5% 12.2% 10.3%Baa3 19.7% 9.8% 33.3% 8.3% 23.2% 18.5% 10.7%Ba2 25.9% 1.4% 21.1% 14.0% 25.8% 14.2% 17.4%Ba3 23.9% 6.2% 17.5% 8.3% 18.2% 14.1% 18.1%

* Probability of downgrade is adjusted for withdrawn ratings. ** For the period 2000-2007 *** For the period 2002-2007 **** Figures are from "theoretical" corporate transition matrix provided in Table 34.


Figure 9 provides the size and composition of the universe of Moody's-rated CDOs on review for downgrade asof February 11, 2008.16 As is true for the composition of CDO downgrades during 2007 and year-to-date 2008,US dollar-denominated resecuritization CDOs dominate the mid-February 2008 statistics for tranches on reviewfor downgrade, contributing 91% of the 2,285 tranches on the list. Here again, 2006 and 2007 vintagetransactions from this CDO sector constitute most of the total. Increased stress for the 2005 vintage is evidentin Figure 9, as 149 tranches from this vintage were on review for downgrade as of mid-February. Downgradeactions for this vintage were minimal during 2007 and early 2008.

Review actions for the non-US dollar-denominated resecuritization CDO category were quite limited by compar-ison, contributing only 2% of the total. Most were placed on review because of their direct or indirect exposureto US subprime RMBS securities.

Figure 8

Moody's CDO Downgrades by Deal Type and Vintage for US and European MarketsJanuary 1, 2008 to February 11, 2008(pari passu tranches treated as one)

Deal Type/Vintage 2000 2001 2002 2003 2004 2005 2006 2007 TotalResecuritizations US $ Deals 1 4 6 3 1 19 27 61Tranches 2 7 8 3 2 69 180 271Market Value US $Deals 1 1 1 3Tranches 4 3 5 12Synthetic Arb. non-US $Deals 5 2 7Tranches 5 2 7Synthetic Arb. US $Deals 5 1 6Tranches 5 2 7Resecuritizations non-US $Deals 1 1Tranches 3 3Market Value non-US $ Deals 1 1Tranches 2 2ACF CBO US $ Deals 1 1Tranches 1 1Totals: Deals 1 4 7 3 0 2 31 32 80Tranches 2 7 9 3 0 6 85 191 303

16 It is worth noting that roughly 1% of the review actions represented in Figure 9 are the direct result of rating actions Moody's took in late 2007 and early 2008 on some of the financial guarantors, including Ambac Assurance Corporation and MBIA. In some instances, these companies have pro-vided insurance to protect against interest and principal shortfalls on a given CDO tranche, and in other cases, they have provided a guaranteed investment contract for a transaction. All of the arbitrage cash flow CLOs and emerging markets CDOs shown in Figure 9, as well as six of the 11 arbitrage cash flow CBOs also included there were placed on review for downgrade as a result of the downgrade review actions taken on the finan-cial guarantors.


Upgrades and Upgrade Reviews

Year-to-date upgrades through February 11th were limited to 6 tranches from 3 deals. Two of the three dealswere 2003 vintage synthetic arbitrage CDOs, and the third transaction was a resecuritization CDO issued in2004.

Moody's-rated CDOs on review for upgrade as of February 11th are shown in Figure 10. Half of the list of 36tranches consists of early vintage US dollar resecuritization CDOs. As already noted in this report, upgradeactions for early vintage deals from this sector were driven by significant delevering, which for some deals wasenhanced by their static nature. The remainder of the tranches on review for upgrade was allocated to a hand-ful of tranches from five other CDO sectors.

Figure 9

Moody's-rated CDOs on Review for Downgrade by Deal Type and Vintage for US and European MarketsAs of February 11, 2008

(pari passu tranches treated as one)Deal Type/Vintage 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 TotalResecuritizations US $ Deals 1 4 7 18 21 17 53 239 196 556Tranches 1 5 11 31 43 43 149 994 811 2088Synthetic Arb. US $

Deals 1 3 5 9 10 7 35Tranches 1 3 6 38 14 8 70Resecuritizations non-US $ Deals 3 2 3 5 13Tranches 8 4 19 14 45REIT TRUPS CDOs

Deals 3 7 1 11Tranches 5 21 4 30Market Value US $

Deals 1 3 1 1 6Tranches 2 6 2 9 19ACF CBO US $

Deals 1 1 3 2 1 1 9Tranches 1 1 3 3 1 2 11Synthetic Arb. non-US $

Deals 4 3 7Tranches 7 3 10ACF CLO US $

Deals 2 1 1 1 1 6Tranches 2 1 1 1 1 6B/S Synthetic non-US $

Deals 1 1Tranches 3 3Emerging Markets US $

Deals 1 1 2Tranches 1 1 2ACF CLO non-US $ Deals 1 1Tranches 1 1Totals: Deals 1 2 0 6 4 11 20 29 30 73 266 205 647Tranches 1 2 0 6 5 17 33 57 62 219 1051 832 2285


CONCLUSION & OUTLOOKA review of the CDO market's credit performance in 2007 underscores its diversity. While subprime RMBS-backed resecuritization CDOs underwent widespread and severe downgrades, other key CDO sectors per-formed well, including those tied to the US and European corporate credit markets.

The ongoing negative performance of subprime-linked resecuritization CDOs shows no signs of abating duringthis year. In its recent report on its 2008 outlook for the US CDO market, Moody's says that it expects furtherdeterioration in the performance of 2006 and 2007 vintage subprime RMBS securities, which will ripple throughto affect these already beleaguered CDO transactions. 17

Less clear-cut is the near-term credit outlook for arbitrage cash flow CLOs. Given the unprecedented turmoiland significant lack of liquidity in the credit markets, expectations for an economic slowdown, and a forecastedsharp increase in corporate default rates, Moody's has characterized its 2008 outlook for the US arbitrage cashflow CLO market as stable/negative.18 This outlook indicates that Moody's does not expect CLOs to performas well over the next year as they are performing currently. Nonetheless, Moody's anticipates this decline inperformance to have only limited rating implications.

General economic trends will also affect the credit behavior of other corporate-backed CDOs, such as arbitragecash flow CBOs and synthetic corporate CDOs. The specific characteristics of each of these CDO types willdetermine what effect these trends will have on deal performance. For example, if the default rate on corporateloans is lower than the overall corporate default rate, as Moody's currently projects, then Moody's would expectto observe a higher level of defaulted securities in arbitrage cash flow CBOs than in arbitrage cash flow CLOs.19

However, unlike most outstanding CLOs, a significant portion of outstanding CBOs are outside of their reinvest-ment periods. Thus, CBOs will benefit from delevering, which can mitigate, to some extent, deterioration in portfoliocredit quality.

Figure 10

Moody's-rated CDOs on Review for Upgrade by Deal Type and Vintage for US and European MarketsAs of February 11, 2008


Deal Type/Vintage 1999 2000 2001 2002 2003 2004 TotalResecuritizations US $ Deals 1 3 1 1 2 8Tranches 3 7 1 3 4 18ACF CBO US $ Deals 2 2 1 5Tranches 2 2 1 5Bank and Insurance TRUPS CDOsDeals 2 3 5Tranches 2 3 5ACF CLO US $ Deals 1 1 1 3Tranches 1 1 2 4Synthetic Arb. non-US $ Deals 1 1 2Tranches 2 1 3Resecuritizations non-US $ Deals 1 1Tranches 1 1Totals: Deals 4 6 4 6 1 3 24Tranches 6 10 5 7 3 5 36

17 See Moody's Special Report "2008 U.S. CDO Outlook and 2007 Review," published March 3, 2008.18 See Moody's Special Report "U.S. Cash-Flow CLO 2007 Sector Review and 2008 Outlook," published February 29, 2008. 19 See Moody's Special Comment, "Syndicated Bank Loans: 2007 Default Review and 2008 Outlook," published January 2008.




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As for synthetic CDOs, trends in both the US and European corporate credit markets will drive their perfor-mance, since a vast majority of non-US dollar-denominated deals, as well as a significant number of US dollar-denominated transactions, are supported by European corporate obligors. Moody's 2008 CDO market outlookreports state that based on the assumption that deterioration in corporate credit quality will continue, the perfor-mance of synthetic arbitrage CDOs' corporate-backed portfolios is likely to weaken. Nonetheless, the tworeports note further that this weakening should be partially offset by the reduction of risk tied to the maturityshortening of these transactions.20

Regarding the non-US dollar-denominated resecuritization CDO sector, Moody’s expects those transactionswith exposure to US subprime RMBS securities to exhibit credit deterioration during 2008. However, since asignificant portion of the transactions in this CDO sector do not contain such exposures, their performance will,instead, be driven by credit trends of various European ABS securities and investment-grade corporate syn-thetic CDO securities.

Moody's describes the outlook for the bank and insurance TRUPS CDOs as stable and the outlook for REITTRUPS CDOs as negative, reflecting the fact that many of the notes from this latter category are on review fordowngrade.21

Recent trends that Moody's expects to continue during 2008 include the maturity of earlier vintage syntheticarbitrage CDOs as they reach their legal maturity dates, further delevering of arbitrage cash flow CBOs andemerging markets CDOs, the majority of which were issued in the late 1990s and early 2000s, and a continuingflow of withdrawn ratings.

20 See Moody's Special Report "2008 U.S. CDO Outlook and 2007 Review," published March 3, 2008 and Moody's Special Report " 2007 Review and 2008 Outlook: EMEA Collateralised Debt Obligations: Strong First Half in 2007 Diluted by Global Credit Crisis; Lower Issuance Expected in 2008 Reflecting Continued Market Disruptions," published February 4, 2008.

21 See Moody's Special Report, "The U.S. Trust Preferred CDO Sector Review and 2008 Outlook," published March 6, 2008.








APPENDIX

Table of Contents

2007 One-Year Credit Rating Migration Matrices (transitions from 1/1/07 to 12/31/07)Table 1: Arbitrage Cash Flow CBOs (U.S. $)

Table 2: Arbitrage Cash Flow CLOs (U.S. $)

Table 3: Resecuritizations (U.S. $)

Table 4: Synthetic Arbitrage CDOs (U.S. $)

Table 5: Synthetic Arbitrage CDOs (non-U.S. $)

Table 6: Balance Sheet Synthetic CDOs (non-U.S. $)

Table 7: Market Value CDOs (U.S. $)

Table 8: Balance Sheet Cash Flow CDOs (U.S. $)

Table 9: Balance Sheet Synthetic CDOs (U.S. $)

Table 10: Arbitrage Cash Flow Investment-Grade CBOs (U.S. $)

Table 11: Emerging Markets CDOs (U.S. $)

Table 12: Balance Sheet Cash Flow CDOs (non-U.S. $)

Table 13: REIT TRUPS CDOs

Table 14: Bank and Insurance TRUPS CDOs

Table 15: Resecuritizations (non-U.S. $)

Weighted Average One-Year Credit Rating Migration MatricesTable 16: Arbitrage Cash Flow CBOs (U.S. $)

Table 17: Arbitrage Cash Flow CLOs (U.S. $)

Table 18: Resecuritizations (U.S. $)

Table 19: Synthetic Arbitrage CDOs (U.S. $)

Table 20: Synthetic Arbitrage CDOs (non-U.S. $)

Table 21: Balance Sheet Synthetic CDOs (non-U.S. $)

Table 22: Market Value CDOs (U.S. $)

Table 23: Balance Sheet Cash Flow CDOs (U.S. $)

Table 24: Balance Sheet Synthetic CDOs (U.S. $)

Table 25: Arbitrage Cash Flow Investment-Grade CBOs (U.S. $)

Table 26: Emerging Markets CDOs (U.S. $)

Table 27: Balance Sheet Cash Flow CDOs (non-U.S. $)

Cumulative Downgrade Transition Matrices for Arbitrage Cash Flow CLOsTable 28a: 1997 Vintage Arbitrage Cash Flow CLOs

Table 28b: 1998 Vintage Arbitrage Cash Flow CLOs

Table 28c: 1999 Vintage Arbitrage Cash Flow CLOs

Table 28d: 2000 Vintage Arbitrage Cash Flow CLOs

Table 28e: 2001 Vintage Arbitrage Cash Flow CLOs

Table 28f: 2002 Vintage Arbitrage Cash Flow CLOs

Table 28g: 2003 Vintage Arbitrage Cash Flow CLOs

Table 28h: 2004 Vintage Arbitrage Cash Flow CLOs

Table 28i: 2005 Vintage Arbitrage Cash Flow CLOs

Table 28j: 2006 Vintage Arbitrage Cash Flow CLOs

Cumulative Transition Matrices22 Table 29a: 1997 Vintage Arbitrage Cash Flow CBOs

Table 29b: 1998 Vintage Arbitrage Cash Flow CBOs

Table 29c: 1999 Vintage Arbitrage Cash Flow CBOs

Table 29d: 2000 Vintage Arbitrage Cash Flow CBOs

Table 29e: 2001 Vintage Arbitrage Cash Flow CBOs

Table 29f: 2002 Vintage Arbitrage Cash Flow CBOs

Table 29g: 2003 Vintage Arbitrage Cash Flow CBOs

Table 29h: 2004 Vintage Arbitrage Cash Flow CBOs

Table 30a: 1997 Vintage Arbitrage Cash Flow CLOs

Table 30b: 1998 Vintage Arbitrage Cash Flow CLOs

Table 30c: 1999 Vintage Arbitrage Cash Flow CLOs

Table 30d: 2000 Vintage Arbitrage Cash Flow CLOs

Table 30e: 2001 Vintage Arbitrage Cash Flow CLOs

Table 30f: 2002 Vintage Arbitrage Cash Flow CLOs

Table 30g: 2003 Vintage Arbitrage Cash Flow CLOs

Table 30h: 2004 Vintage Arbitrage Cash Flow CLOs

Table 30i: 2005 Vintage Arbitrage Cash Flow CLOs

Table 30j: 2006 Vintage Arbitrage Cash Flow CLOs

CDO Sectors Combined into One CategoryTable 31: Fifteen CDO Categories Combined Into One CDO Category, 1/1/07 to 12/31/07

Table 32: Weighted Average One-Year Credit Rating Migration Matrix: Fifteen CDO Categories Combined IntoOne CDO Category

Corporate Rating Transition MatricesTable 33: Moody's Corporate Ratings, 1/1/07 to 12/31/07

Table 34: Corporate Ratings for the 12 Years 1996 to 2007, Using CDO Note Weights

22 A substantial portion of arbitrage cash flow CBO and CLO note ratings have been withdrawn over the years. The ratings of notes whose ratings have been withdrawn are indicated as WR in Tables 29a - 29h and Tables 30a - 30j. As a result, information about the ratings performance since issuance of such notes is not discernible from these tables. Nonetheless, we have chosen to continue to provide these tables in this year's study, because they do contain information that some readers may find useful.


3 Caa1 Caa2 Caa3 Ca C WR21.1%10.0%16.7%12.5%50.0%10.0%29.4%20.0%33.3%15.0%12.5%27.8%

20.0% 10.0%9.1% 9.1% 18.2%

8.3% 16.7%.4%

66.7% 8.3% 16.7%63.6% 9.1% 27.3%

100.0%94.3% 5.7%

88.2% 11.8%

22 • Mo

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Table 1

One-Year Credit Rating Migration Matrix2007 Cohort: Arbitrage Cash Flow CBOs (U.S. $ denominated)

Rating as of 12/31/07:

Count Aaa Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Ba1 Ba2 Ba3 B1 B2 B109 Rating Aaa 78.0% 0.9%10 as of 1/1/07: Aa1 10.0% 80.0%12 Aa2 83.3%8 Aa3 12.5% 62.5% 12.5%4 A1 50.0%10 A2 10.0% 80.0%17 A3 5.9% 11.8% 47.1% 5.9%5 Baa1 40.0% 40.0%21 Baa2 4.8% 61.9%20 Baa3 5.0% 5.0% 60.0% 5.0% 10.0%8 Ba1 12.5% 75.0%18 Ba2 5.6% 61.1% 5.6%10 Ba3 70.0%11 B1 9.1% 54.5%12 B2 75.0%7 B3 14.3% 14.3% 7112 Caa1 8.3%11 Caa27 Caa353 Ca85 C450

Cred

it Mig

ration o

f CD

O N

otes, 1996 - 2007, fo

r US

and E

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ean Transactions

Mo

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ervice • 23

Caa1 Caa2 Caa3 Ca C WR6.3%

2.1%25.0%17.1%2.1%28.0%28.6%5.5%3.8%10.0%3.5%36.0%

100.0%100.0%

100.0%100.0%

Table 2

One-Year Credit Rating Migration Matrix2007 Cohort: Arbitrage Cash Flow CLOs (U.S. $ denominated)


Count Aaa Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Ba1 Ba2 Ba3 B1 B2 B3507 Rating Aaa 93.7%62 as of 1/1/07: Aa1 100.0%284 Aa2 0.4% 97.5%8 Aa3 75.0%35 A1 2.9% 2.9% 77.1%333 A2 0.3% 0.3% 97.3%25 A3 8.0% 4.0% 60.0%7 Baa1 71.4%343 Baa2 0.3% 0.3% 93.6% 0.3%26 Baa3 96.2%10 Ba1 90.0%229 Ba2 0.4% 96.1%25 Ba3 56.0% 4.0% 4.0%2 B1 50.0% 50.0%4 B2 100.0%2 B3 100.0%2 Caa11 Caa2

Caa36 Ca6 C1917

Caa1 Caa2 Caa3 Ca C WR0.2% 0.1% 0.1% 0.1% 0.2% 2.5%

3.7%0.4% 1.1% 1.1% 0.4% 0.2% 1.5%1.6% 2.3% 0.8% 0.8% 3.9%

2.0%1.5% 1.2% 2.1% 4.8% 0.3% 1.2%1.9% 0.6% 1.9% 1.2% 3.1%

5.9% 11.8%1.3% 2.3% 4.3% 6.8% 0.5% 2.0%1.4% 8.2% 19.2% 4.1%4.7% 7.0% 8.1% 24.4% 3.5%4.8% 4.8% 4.8% 7.9% 4.8% 3.2%

% 6.3%100.0%

25.0%% 25.0%

100.0%50.0% 33.3%

50.0% 12.5% 25.0%89.5% 5.3%

4.2% 91.7% 4.2%

24 • Mo

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Euro

pean Transactio

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Table 3

One-Year Credit Rating Migration Matrix2007 Cohort: Resecuritizations (U.S. $ denominated)


Count Aaa Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Ba1 Ba2 Ba3 B1 B2 B31131 Rating Aaa 89.7% 0.4% 0.4% 0.5% 0.5% 1.0% 0.6% 0.5% 0.4% 0.8% 0.7% 0.3% 0.3% 0.2% 0.2% 0.3%81 as of 1/1/07: Aa1 91.4% 1.2% 1.2% 2.5%456 Aa2 0.7% 0.4% 80.0% 1.1% 2.2% 3.1% 1.1% 1.5% 2.0% 1.1% 0.4% 0.4% 0.2% 0.9%128 Aa3 69.5% 1.6% 3.1% 2.3% 2.3% 3.9% 2.3% 0.8% 0.8% 1.6% 1.6% 0.8%49 A1 2.0% 81.6% 2.0% 2.0% 4.1% 2.0% 2.0% 2.0%336 A2 0.3% 0.3% 60.7% 0.6% 0.9% 6.0% 6.5% 5.1% 3.3% 3.0% 0.9% 0.3% 1.2%161 A3 0.6% 1.9% 0.6% 72.7% 1.2% 0.6% 3.1% 1.2% 5.6% 1.9% 0.6% 0.6% 0.6%34 Baa1 67.6% 2.9% 2.9% 5.9% 2.9%400 Baa2 0.3% 0.3% 0.5% 0.5% 59.8% 0.8% 1.8% 5.3% 6.3% 4.0% 2.3% 1.5%73 Baa3 1.4% 41.1% 2.7% 4.1% 6.8% 4.1% 6.8%86 Ba1 27.9% 1.2% 1.2% 12.8% 5.8% 3.5%63 Ba2 1.6% 3.2% 1.6% 52.4% 3.2% 3.2% 4.8%16 Ba3 75.0% 6.3% 12.51 B14 B2 25.0% 50.0%4 B3 75.01 Caa16 Caa2 16.7%8 Caa3 12.5%19 Ca 5.3%24 C3081

Cred

it Mig

ration o

f CD

O N

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r US

and E

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ean Transactions

Mo

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ervice • 25

Caa1 Caa2 Caa3 Ca C WR18.5%27.6%14.8%19.4%26.9%16.0%19.3%19.4%17.5%20.5%30.0%17.2%38.5%60.0%

.0% 25.0%100.0%

100.0%

Table 4

One-Year Credit Rating Migration Matrix2007 Cohort: Synthetic Arbitrage CDOs (U.S. $ denominated)


Count Aaa Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Ba1 Ba2 Ba3 B1 B2 B3275 Rating Aaa 80.4% 0.4% 0.4% 0.4%29 as of 1/1/07: Aa1 10.3% 58.6% 3.4%122 Aa2 83.6% 0.8% 0.8%62 Aa3 1.6% 6.5% 69.4% 1.6% 1.6%26 A1 7.7% 61.5% 3.8%100 A2 1.0% 83.0%57 A3 1.8% 78.9%36 Baa1 2.8% 72.2% 2.8% 2.8%80 Baa2 1.3% 80.0% 1.3%44 Baa3 72.7% 4.5% 2.3%20 Ba1 65.0% 5.0%29 Ba2 82.8%13 Ba3 7.7% 53.8%5 B1 40.0%2 B2 100.0%4 B3 751 Caa1

Caa2Caa3

1 CaC

906

Caa1 Caa2 Caa3 Ca C WR14.9%14.7%12.5%8.2%38.9%12.5%53.3%7.1%18.2%41.7%33.3%20.0%50.0%100.0%100.0%100.0%

0.0%100.0%

100.0%100.0%

100.0%

26 • Mo

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redit M

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n of C

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No

tes, 1996 - 2007, for U

S and

Euro

pean Transactio

ns

Table 5

One-Year Credit Rating Migration Matrix2007 Cohort: Synthetic Arbitrage CDOs (Non-U.S. $ denominated)


Count Aaa Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Ba1 Ba2 Ba3 B1 B2 B3148 Rating Aaa 84.5% 0.7%34 as of 1/1/07: Aa1 14.7% 61.8% 8.8%56 Aa2 1.8% 17.9% 67.9%49 Aa3 2.0% 14.3% 61.2% 12.2% 2.0%18 A1 16.7% 44.4%32 A2 6.3% 15.6% 65.6%15 A3 6.7% 33.3% 6.7%14 Baa1 7.1% 28.6% 35.7% 21.4%22 Baa2 9.1% 72.7%12 Baa3 16.7% 41.7%6 Ba1 16.7% 50.0%5 Ba2 40.0% 20.0% 20.0%6 Ba3 50.0%1 B11 B22 B31 Caa1 101 Caa21 Caa31 Ca1 C426

Cred

it Mig

ration o

f CD

O N

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r US

and E

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ean Transactions

Mo

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3 Caa1 Caa2 Caa3 Ca C WR29.7%

35.0%14.3%40.0%40.0%50.0%100.0%26.7%50.0%57.1%

Table 6

One-Year Credit Rating Migration Matrix2007 Cohort: Balance Sheet Synthetic CDOs (Non-U.S. $ denominated)


Count Aaa Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Ba1 Ba2 Ba3 B1 B2 B64 Rating Aaa 70.3%6 as of 1/1/07: Aa1 100.0%20 Aa2 65.0%7 Aa3 85.7%5 A1 60.0%20 A2 60.0%2 A3 50.0%4 Baa115 Baa2 73.3%4 Baa3 50.0%7 Ba1 42.9%11 Ba2 100.0%

Ba3B1

2 B2 100.0%B3Caa1Caa2Caa3CaC

167

B3 Caa1 Caa2 Caa3 Ca C WR17.0%

34.6%

7.4% 29.6%

5.6% 16.7% 38.9%

66.7%

50.0%

100.0%

28 • Mo

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Euro

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Table 7

One-Year Credit Rating Migration Matrix2007 Cohort: Market Value CDOs (U.S. $ denominated)


Count Aaa Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Ba1 Ba2 Ba3 B1 B253 Rating Aaa 83.0%

as of 1/1/07: Aa126 Aa2 57.7% 7.7%

Aa31 A1 100.0%27 A2 59.3% 3.7%

A3Baa1

18 Baa2 33.3% 5.6%Baa3Ba1

6 Ba2 33.3%Ba3B1

2 B2 50.0%B3Caa1Caa2

1 Caa3CaC

134

Cred

it Mig

ration o

f CD

O N

otes, 1996 - 2007, fo

r US

and E

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ean Transactions

Mo

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50.0%

33.3%

57.1%

100.0%33.3%

100.0%

100.0%

100.0%

Table 8

One-Year Credit Rating Migration Matrix2007 Cohort: Balance Sheet Cash Flow CDOs (U.S. $ denominated)


Count Aaa Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Ba1 Ba2 Ba3 B1 B2 B313 Rating Aaa 61.5%

as of 1/1/07: Aa12 Aa2 50.0%

Aa33 A1 33.3% 33.3%3 A2 100.0%1 A3 100.0%1 Baa1 100.0%7 Baa2 42.9%1 Baa3 100.0%1 Ba13 Ba2 33.3% 33.3%

Ba31 B1

B21 B3

Caa1Caa2Caa3Ca

1 C38

B3 Caa1 Caa2 Caa3 Ca C WR

100.0%100.0%

30 • Mo

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y’s Investors S

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redit M

igratio

n of C

DO

No

tes, 1996 - 2007, for U

S and

Euro

pean Transactio

ns

Table 9

One-Year Credit Rating Migration Matrix2007 Cohort: Balance Sheet Synthetic CDOs (U.S. $ denominated)


Count Aaa Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Ba1 Ba2 Ba3 B1 B26 Rating Aaa 100.0%2 as of 1/1/07: Aa1 100.0%4 Aa2 100.0%

Aa32 A1 100.0%3 A2 100.0%

A31 Baa1 100.0%1 Baa2 100.0%2 Baa3 100.0%2 Ba1 100.0%2 Ba2 100.0%

Ba31 B1 100.0%

B2B3Caa1Caa2

1 Caa31 Ca

C28

Cred

it Mig

ration o

f CD

O N

otes, 1996 - 2007, fo

r US

and E

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ean Transactions

Mo

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57.1%

33.3%50.0%50.0%

25.0%60.0%50.0%50.0%25.0%20.0%

50.0%100.0%

50.0%100.0%

100.0%

Table 10

One-Year Credit Rating Migration Matrix2007 Cohort: Arbitrage Cash Flow Investment-Grade CDOs (U.S. $ denominated)


Count Aaa Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Ba1 Ba2 Ba3 B1 B2 B325 Rating Aaa 64.0%2 as of 1/1/07: Aa1 100.0%7 Aa2 42.9%2 Aa3 100.0%3 A1 33.3% 33.3%2 A2 50.0%2 A3 50.0%

Baa14 Baa2 75.0%5 Baa3 40.0%4 Ba1 50.0%4 Ba2 50.0%4 Ba3 75.0%5 B1 80.0%

B22 B3 50.0%1 Caa12 Caa2 50.0%3 Caa34 Ca

C81

B3 Caa1 Caa2 Caa3 Ca C WR20.0%100.0%

100.0%

50.0%

100.0%

100.0%

100.0%

32 • Mo

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Table 11

One-Year Credit Rating Migration Matrix2007 Cohort: Emerging Markets CDOs (U.S. $ denominated)


Count Aaa Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Ba1 Ba2 Ba3 B1 B210 Rating Aaa 80.0%1 as of 1/1/07: Aa12 Aa2 100.0%1 Aa3

A12 A2 50.0% 50.0%2 A3 100.0%2 Baa1 50.0%4 Baa2 25.0% 75.0%1 Baa3 100.0%1 Ba12 Ba2 100.0%

Ba3B1

2 B2 100.0%1 B3

Caa1Caa2Caa3

1 CaC

32

Cred

it Mig

ration o

f CD

O N

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r US

and E

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ean Transactions

Mo

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20.0%

Table 12

One-Year Credit Rating Migration Matrix2007 Cohort: Balance Sheet Cash Flow CDOs (Non-U.S. $ denominated)


Count Aaa Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Ba1 Ba2 Ba3 B1 B216 Rating Aaa 93.8%2 as of 1/1/07: Aa1 100.0%5 Aa2 100.0%3 Aa3 100.0%2 A1 100.0%5 A2 80.0%2 A3 100.0%1 Baa1 100.0%3 Baa2 100.0%

Baa32 Ba1 100.0%1 Ba2 100.0%1 Ba3 100.0%

B1B2B3Caa1Caa2Caa3CaC

43


34 • Mo

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Euro

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Table 13

One-Year Credit Rating Migration Matrix2007 Cohort: REIT TRUPS CDOs


Count Aaa Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Ba1 Ba2 Ba3 B1 B244 Rating Aaa 100.0%3 as of 1/1/07: Aa1 100.0%14 Aa2 100.0%3 Aa3 100.0%

A12 A2 100.0%11 A3 100.0%

Baa1Baa2

1 Baa3 100.0%Ba1Ba2Ba3B1B2B3Caa1Caa2Caa3CaC

78

Cred

it Mig

ration o

f CD

O N

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r US

and E

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ean Transactions

Mo

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3 Caa1 Caa2 Caa3 Ca C WR4.1%

Table 14

One-Year Credit Rating Migration Matrix2007 Cohort: Bank and Insurance TRUPS CDOs


Count Aaa Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Ba1 Ba2 Ba3 B1 B2 B121 Rating Aaa 95.9%11 as of 1/1/07: Aa1 9.1% 90.9%19 Aa2 100.0%1 Aa3 100.0%4 A1 100.0%33 A2 100.0%22 A3 100.0%

Baa115 Baa2 100.0%3 Baa3 100.0%

Ba12 Ba2 100.0%

Ba3B1B2B3Caa1Caa2Caa3CaC

231

B3 Caa1 Caa2 Caa3 Ca C WR12.9%5.4%17.4%12.5%19.2%7.1%

25.0%25.9%16.7%25.0%50.0%

100.0%

36 • Mo

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n of C

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No

tes, 1996 - 2007, for U

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Euro

pean Transactio

ns

Table 15

One-Year Credit Rating Migration Matrix2007 Cohort: Resecuritizations (Non-U.S. $ denominated)


Count Aaa Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Ba1 Ba2 Ba3 B1 B2139 Rating Aaa 84.2% 1.4% 1.4%37 as of 1/1/07: Aa1 86.5% 5.4% 2.7%46 Aa2 80.4% 2.2%40 Aa3 80.0% 2.5% 5.0%26 A1 80.8%42 A2 85.7% 2.4% 4.8%17 A3 5.9% 82.4% 5.9% 5.9%4 Baa1 75.0%27 Baa2 74.1%6 Baa3 83.3%12 Ba1 75.0%2 Ba2 50.0%1 Ba3 100.0%

B11 B2

B3Caa1Caa2Caa3CaC

400

Cred

it Mig

ration o

f CD

O N

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r US

and E

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ean Transactions

Mo

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3 Caa1 Caa2 Caa3 Ca/C WR9.7%7.2%

0.3% 5.1%3.1%

5% 8.8%8.0%

1.5% 0.5% 0.5% 7.8%1.4% 2.9% 5.8%

8% 1.0% 2.0% 1.3% 4.3%3% 0.5% 1.0% 0.8% 1.3% 5.8%2% 1.1% 2.2% 1.1% 1.1% 7.8%9% 2.6% 2.6% 1.7% 7.9% 5.7%3% 2.2% 3.9% 2.2% 8.8% 4.4%1% 4.7% 2.3% 4.7% 12.8% 4.1%5% 3.8% 3.8% 1.3% 8.9% 6.3%.3% 2.3% 4.7% 4.7% 15.1% 1.2%

65.2% 5.8% 21.7% 2.9%3% 62.5% 3.8% 26.3% 5.0%

2.9% 57.1% 31.4% 7.1%0.2% 96.0% 3.9%

Table 16

Weighted Average One-Year Credit Rating Migration MatrixArbitrage Cash Flow CBOs (U.S. $ denominated) for the 12 Year Period 1996-2007

Rating to:Count Aaa Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Ba1 Ba2 Ba3 B1 B2 B1036 Rating Aaa 85.9% 1.0% 1.1% 0.8% 0.3% 0.2% 0.4% 0.3% 0.1% 0.2% 0.1%69 from: Aa1 7.2% 72.5% 1.4% 5.8% 1.4% 1.4% 1.4% 1.4%353 Aa2 2.3% 1.1% 77.1% 4.0% 2.8% 1.4% 1.1% 1.7% 0.6% 2.0% 0.3% 0.3%131 Aa3 6.9% 65.6% 4.6% 3.1% 5.3% 1.5% 0.8% 5.3% 0.8% 0.8% 0.8% 1.5%68 A1 8.8% 1.5% 1.5% 63.2% 1.5% 4.4% 1.5% 2.9% 4.4% 1.75 A2 4.0% 2.7% 1.3% 73.3% 1.3% 1.3% 1.3% 2.7% 1.3% 1.3% 1.3%205 A3 1.5% 0.5% 1.0% 1.5% 1.0% 71.7% 2.4% 3.9% 1.0% 2.4% 0.5% 1.5% 0.5% 0.5%69 Baa1 4.3% 2.9% 4.3% 60.9% 1.4% 4.3% 7.2% 1.4% 2.9%393 Baa2 0.5% 0.3% 0.8% 75.3% 3.6% 2.3% 2.3% 1.8% 3.3% 0.5% 0.382 Baa3 0.3% 0.3% 0.3% 0.5% 0.5% 0.8% 0.3% 0.5% 72.3% 3.4% 4.2% 2.9% 2.4% 0.8% 1.90 Ba1 1.1% 1.1% 1.1% 1.1% 3.3% 1.1% 63.3% 1.1% 1.1% 5.6% 4.4% 2.229 Ba2 0.9% 1.3% 0.4% 67.2% 1.3% 3.5% 3.9% 0.228 Ba3 0.4% 0.4% 0.4% 0.4% 0.9% 70.2% 3.5% 0.9% 1.172 B1 0.6% 0.6% 0.6% 1.2% 0.6% 59.9% 4.1% 4.79 B2 2.5% 1.3% 1.3% 68.4% 2.86 B3 1.2% 2.3% 2.3% 6669 Caa1 1.4% 1.4% 1.4%80 Caa2 1.3% 1.70 Caa3 1.4%649 Ca/C4533

007

B3 Caa1 Caa2 Caa3 Ca/C WR7.8%2.9%4.3%12.8%6.3%3.1%9.7%13.2%5.3%

0.5% 7.3%2.1% 8.3%

0.3% 0.2% 0.2% 0.2% 5.2%1.3% 1.3% 0.4% 1.3% 11.0%

3.3% 3.3% 13.3% 6.7%14.3%

80.0% 5.0% 15.0%70.6% 5.9% 11.8% 11.8%

100.0%66.7% 16.7% 8.3%

97.8% 2.2%

38 • Mo

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Table 17

Weighted Average One-Year Credit Rating Migration MatrixArbitrage Cash Flow CLOs (U.S. $ denominated) for the 12 Year Period 1996-2

Rating to:Count Aaa Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Ba1 Ba2 Ba3 B1 B21737 Rating Aaa 92.1% 0.1%137 from: Aa1 1.5% 95.6%701 Aa2 0.7% 94.2% 0.7% 0.1%156 Aa3 2.6% 82.1% 0.6% 0.6% 1.3%127 A1 0.8% 1.6% 0.8% 89.8% 0.8%708 A2 0.6% 0.1% 0.1% 96.0%319 A3 1.3% 0.3% 0.9% 0.3% 86.2% 0.9% 0.3%53 Baa1 1.9% 84.9%1027 Baa2 0.3% 0.1% 0.2% 0.1% 93.2% 0.2% 0.2% 0.3% 0.2%220 Baa3 0.5% 0.5% 0.5% 82.3% 0.9% 1.4% 4.1% 1.8% 0.5%48 Ba1 83.3% 6.3%592 Ba2 0.2% 0.2% 93.1% 0.3% 0.2%237 Ba3 0.4% 0.4% 0.4% 82.3% 0.8% 0.4%30 B1 3.3% 3.3% 63.3% 3.3%21 B2 85.7%20 B317 Caa12 Caa212 Caa3 8.3%45 Ca/C6209

Cred

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and E

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3 Caa1 Caa2 Caa3 Ca/C WR.1% 0.1% 0.1% 3.0%

4.7%.4% 0.2% 0.5% 0.6% 0.4% 2.1%.4% 0.8% 1.2% 0.8% 5.4%

0.7% 4.0%.7% 0.9% 0.9% 1.3% 3.0% 1.8%.2% 0.8% 0.2% 0.6% 1.1% 3.4%.4% 2.9% 5.8% 2.9%.1% 0.9% 1.6% 1.9% 3.4% 2.0%.4% 0.5% 0.5% 3.8% 12.1% 2.7%.3% 3.1% 5.4% 5.4% 19.2% 1.5%.7% 1.8% 2.4% 3.0% 4.9% 1.8%.9% 7.3% 2.4%.1% 9.1% 45.5% 9.1%

4.3% 8.7% 4.3% 21.7% 4.3%1.3% 6.3% 25.0% 37.5%6.7% 50.0% 33.3%

56.0% 4.0% 36.0%63.2% 31.6%

1.0% 95.8% 2.1%

Table 18

Weighted Average One-Year Credit Rating Migration MatrixResecuritization CDOs (U.S. $ denominated) for the 8 Year Period 2000-2007

Rating to:Count Aaa Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Ba1 Ba2 Ba3 B1 B2 B2618 Rating Aaa 92.6% 0.4% 0.6% 0.3% 0.3% 0.4% 0.3% 0.2% 0.2% 0.4% 0.3% 0.1% 0.1% 0.1% 0.1% 0235 from: Aa1 1.7% 88.1% 0.9% 0.4% 1.3% 1.3% 0.4% 0.9% 0.4%997 Aa2 0.6% 0.6% 86.5% 0.6% 0.7% 1.5% 1.7% 0.7% 1.0% 0.9% 0.5% 0.2% 0.2% 0.1% 0257 Aa3 0.4% 0.4% 74.3% 1.2% 1.9% 2.3% 1.2% 1.9% 2.7% 1.6% 1.2% 0.8% 0.8% 0.8% 0149 A1 0.7% 0.7% 2.0% 83.9% 1.3% 2.0% 0.7% 0.7% 1.3% 0.7% 0.7% 0.7%558 A2 0.2% 0.7% 0.4% 73.1% 0.5% 0.5% 3.8% 3.9% 3.2% 2.5% 1.8% 0.5% 0.2% 0475 A3 0.4% 0.6% 1.3% 0.2% 82.9% 0.4% 0.8% 2.1% 0.4% 2.3% 0.6% 0.6% 0.8% 069 Baa1 75.4% 4.3% 1.4% 2.9% 1.4% 1.4% 1930 Baa2 0.1% 0.1% 0.1% 0.2% 0.3% 0.5% 0.4% 76.0% 1.1% 1.2% 2.8% 2.9% 2.0% 1.2% 1182 Baa3 0.5% 0.5% 63.7% 1.1% 1.1% 2.7% 3.8% 2.2% 4130 Ba1 47.7% 1.5% 0.8% 8.5% 4.6% 2164 Ba2 0.6% 1.2% 0.6% 75.0% 0.6% 1.8% 2.4% 341 Ba3 80.5% 4.9% 411 B1 27.3% 923 B2 4.3% 52.2%16 B3 36 Caa1 125 Caa2 4.0%19 Caa3 5.3%96 Ca/C 1.0%7001

07

B1 B2 B3 Caa/C WR10.8%16.1%7.8%9.7%13.8%

0.4% 8.6%12.2%12.3%

0.4% 0.7% 1.4% 0.4% 8.0%0.7% 0.7% 0.7% 13.0%2.6% 1.3% 1.3% 3.9% 16.9%1.9% 1.9% 5.7% 11.4%

% 4.4% 2.2% 20.0%66.7% 5.6% 5.6% 22.2%

63.2% 15.8% 15.8%3.2% 61.3% 12.9% 22.6%10.0% 70.0% 20.0%

75.0% 25.0%62.5% 37.5%65.2% 34.8%71.4% 28.6%

40 • Mo

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Euro

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Table 19

Weighted Average One-Year Credit Rating Migration MatrixSynthetic Arbitrage CDOs (U.S. $ denominated) for the 6 Year Period 2002-20

Rating to:Count Aaa Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Ba1 Ba2 Ba3795 Rating Aaa 85.8% 1.6% 0.5% 0.5% 0.3% 0.1% 0.1% 0.1% 0.1%118 from: Aa1 7.6% 67.8% 4.2% 0.8% 0.8% 0.8% 0.8% 0.8%307 Aa2 0.7% 0.3% 84.0% 2.0% 2.0% 1.6% 1.0% 0.3% 0.3%176 Aa3 1.1% 1.1% 2.3% 73.9% 3.4% 2.3% 1.7% 1.7% 0.6% 0.6% 1.1% 0.6%109 A1 0.9% 1.8% 1.8% 3.7% 68.8% 0.9% 1.8% 2.8% 0.9% 2.8%269 A2 1.1% 0.7% 81.0% 3.3% 3.0% 0.4% 1.1% 0.4%172 A3 0.6% 1.2% 2.3% 77.3% 1.7% 2.3% 1.2% 0.6% 0.6%122 Baa1 0.8% 0.8% 1.6% 1.6% 74.6% 3.3% 1.6% 0.8% 2.5%276 Baa2 0.4% 0.4% 1.1% 0.4% 0.7% 0.7% 79.7% 1.8% 2.9% 1.1%138 Baa3 0.7% 0.7% 78.3% 1.4% 1.4% 2.2%77 Ba1 1.3% 1.3% 1.3% 64.9% 3.9% 1.3%105 Ba2 1.0% 1.0% 1.0% 73.3% 2.9%45 Ba3 2.2% 71.118 B119 B2 5.3%31 B310 Caa124 Caa28 Caa323 Ca7 C2849

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a1 Caa2 Caa3 Ca C WR10.4%10.7%7.7%11.3%15.7%7.2%18.7%9.6%12.0%

% 21.6%% 2.4% 16.7%

2.4% 24.4%2.4% 4.9% 19.5%10.0% 5.0% 25.0%

% 7.1% 21.4%5% 6.3% 12.5% 6.3% 18.8%3% 11.1% 11.1% 11.1% 5.6% 16.7%2% 45.5% 9.1% 9.1% 18.2%

60.0% 4.0% 32.0%66.7% 13.3% 20.0%

62.5% 37.5%

Table 20

Weighted Average One-Year Credit Rating Migration MatrixSynthetic Arbitrage CDOs (Non-U.S. $ denominated) for the 6 Year Period 2002-2007

Rating to:Count Aaa Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Ba1 Ba2 Ba3 B1 B2 B3 Ca536 Rating Aaa 84.9% 1.5% 1.1% 0.7% 0.4% 0.2% 0.2% 0.4% 0.2%84 from: Aa1 9.5% 65.5% 8.3% 1.2% 2.4% 1.2% 1.2%233 Aa2 1.7% 6.4% 72.5% 4.3% 3.0% 0.4% 1.7% 1.3% 0.4% 0.4%141 Aa3 2.8% 1.4% 6.4% 59.6% 9.2% 3.5% 1.4% 0.7% 0.7% 1.4% 0.7% 0.7%70 A1 1.4% 4.3% 5.7% 57.1% 4.3% 1.4% 7.1% 1.4% 1.4%139 A2 0.7% 2.2% 1.4% 1.4% 5.0% 73.4% 4.3% 2.2% 0.7% 0.7% 0.7%75 A3 1.3% 1.3% 4.0% 2.7% 49.3% 4.0% 5.3% 5.3% 5.3% 1.3% 1.3%73 Baa1 1.4% 4.1% 2.7% 8.2% 47.9% 6.8% 15.1% 2.7% 1.4%133 Baa2 0.8% 0.8% 0.8% 2.3% 3.8% 66.9% 6.8% 2.3% 0.8% 0.8% 0.8% 0.8% 0.8%88 Baa3 1.1% 1.1% 1.1% 2.3% 54.5% 4.5% 4.5% 3.4% 1.1% 1.1% 3.442 Ba1 2.4% 2.4% 2.4% 4.8% 2.4% 47.6% 2.4% 4.8% 4.8% 4.8% 2.441 Ba2 9.8% 46.3% 12.2% 4.9%41 Ba3 2.4% 2.4% 4.9% 56.1% 2.4% 4.9%20 B1 5.0% 50.0% 5.0%14 B2 7.1% 7.1% 42.9% 7.1% 7.116 B3 43.8% 12.18 Caa1 5.6% 5.6% 33.11 Caa2 18.25 Caa3 4.0%15 Ca8 C1823

0-2007

Caa1 Caa2 Caa3 Ca C WR14.7%10.9%14.4%7.3%16.0%15.0%24.0%18.4%13.8%14.3%13.7%

% 10.1%% 4.8% 14.3%6% 28.6%

18.2%7% 6.7% 26.7%

100.0%40.0% 20.0% 40.0%100.0%

42 • Mo

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Table 21

Weighted Average One-Year Credit Rating Migration MatrixBalance Sheet Synthetic CDOs (Non-U.S. $ denominated) for the 8 Year Period 200

Rating to:Count Aaa Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Ba1 Ba2 Ba3 B1 B2 B3333 Rating Aaa 83.8% 1.2% 0.3%55 from: Aa1 7.3% 74.5% 1.8% 1.8% 1.8% 1.8%97 Aa2 2.1% 3.1% 76.3% 2.1% 2.1%55 Aa3 1.8% 7.3% 78.2% 3.6% 1.8%50 A1 2.0% 2.0% 66.0% 4.0% 10.0%113 A2 0.9% 0.9% 0.9% 79.6% 0.9% 0.9% 0.9%25 A3 4.0% 8.0% 4.0% 44.0% 4.0% 8.0% 4.0%49 Baa1 2.0% 2.0% 73.5% 4.1%87 Baa2 1.1% 3.4% 1.1% 75.9% 1.1% 2.3% 1.1%56 Baa3 3.6% 1.8% 1.8% 3.6% 66.1% 7.1% 1.8%51 Ba1 2.0% 78.4% 2.0% 2.0% 2.0%99 Ba2 1.0% 1.0% 1.0% 77.8% 2.0% 3.0% 1.0% 3.021 Ba3 4.8% 9.5% 57.1% 4.8% 4.87 B1 14.3% 28.6% 28.11 B2 9.1% 9.1% 63.6%15 B3 6.7% 13.3% 46.

Caa11 Caa25 Caa31 Ca

C1131

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B3 Caa1 Caa2 Caa3 Ca/C WR18.0%11.8%14.8%

1.4% 13.8%20.0%

0.8% 2.4% 15.0%4.8% 19.0%

1.2% 12.2%

2.2% 2.2% 8.9%

100.0%50.0% 50.0%

50.0% 25.0% 25.0%66.7% 33.3%

Table 22

Weighted Average One-Year Credit Rating Migration MatrixMarket Value CDOs (U.S. $ denominated) for the 9 Year Period 1999-2007

Rating to:Count Aaa Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Ba1 Ba2 Ba3 B1 B2139 Rating Aaa 81.3% 0.7%51 from: Aa1 88.2%176 Aa2 84.1% 1.1%

Aa35 A1 100.0%145 A2 84.1% 0.7%5 A3 80.0%

Baa1127 Baa2 80.3% 0.8% 0.8%21 Baa3 76.2%

Ba182 Ba2 86.6%

Ba3B1

45 B2 86.7%B3

1 Caa12 Caa24 Caa36 Ca/C809

-2007

Ba3 B1 B2 B3 Caa/C WR18.7%

5.6%28.6%9.7%19.6%

6.3% 6.3%18.2%

0.9% 20.4%4.8% 4.8%

11.1%1.1% 1.1% 1.1% 16.1%50.0% 50.0%

100.0%100.0%100.0%66.7% 33.3%

44 • Mo

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Table 23

Weighted Average One-Year Credit Rating Migration MatrixBalance Sheet Cash Flow CDOs (U.S. $ denominated) for the 10 Year Period 1998

Rating to:Count Aaa Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Ba1 Ba2235 Rating Aaa 80.9% 0.4%1 from: Aa1 100.0%18 Aa2 5.6% 5.6% 83.3%14 Aa3 71.4%31 A1 3.2% 3.2% 83.9%92 A2 80.4%16 A3 81.3% 6.3%44 Baa1 2.3% 79.5%108 Baa2 78.7%21 Baa3 90.5%9 Ba1 22.2% 66.7%87 Ba2 1.1% 79.3%4 Ba31 B11 B21 B33 Caa/C686

Cred

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O N

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r US

and E

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7

B1 B2 B3 Caa/C WR17.1%22.2%

2.7% 21.6%22.2%

2.9% 14.3%1.9% 21.2%

20.0%2.3% 2.3% 14.0%

3.8% 3.8% 15.4%3.7% 18.5%

4.8% 7.1% 9.5% 9.5%13.3% 13.3% 40.0%

70.0% 10.0% 10.0%50.0% 50.0%

42.9% 50.0% 7.1%56.4% 43.6%

Table 24

Weighted Average One-Year Credit Rating Migration MatrixBalance Sheet Synthetic CDOs (U.S. $ denominated) for the 10 Year Period 1998-200

Rating to:Count Aaa Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Ba1 Ba2 Ba3111 Rating Aaa 76.6% 2.7% 2.7% 0.9%36 from: Aa1 75.0% 2.8%37 Aa2 2.7% 67.6% 2.7% 2.7%9 Aa3 44.4% 11.1% 11.1% 11.1%35 A1 2.9% 74.3% 5.7%52 A2 67.3% 1.9% 1.9% 5.8%6 A3 16.7% 33.3% 16.7% 16.7% 16.7%25 Baa1 4.0% 64.0% 12.0%43 Baa2 65.1% 9.3% 4.7% 2.3%26 Baa3 69.2% 3.8% 3.8%27 Ba1 3.7% 66.7% 7.4%42 Ba2 2.4% 61.9% 4.8%15 Ba3 33.3%10 B1 10.0%2 B214 B339 Caa/C529

d 1999-2007

B3 Caa1 Caa2 Caa3 Ca/C WR7.3%

7.7%6.3%9.1%7.1%13.3%

5.5% 1.4% 1.4% 2.7%5.1% 2.6% 10.3%

5.9% 5.9% 17.6%16.7%7.7%9.1%

11.1% 11.1% 11.1%62.5% 6.3% 6.3% 6.3% 12.5%

75.0% 25.0%11.1% 77.8% 11.1%

92.3% 7.7%100.0%

46 • Mo

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Table 25

Weighted Average One-Year Credit Rating Migration MatrixArbitrage Cash Flow Investment-Grade CBOs (U.S. $ denominated) for the 9 Year Perio

Rating to:Count Aaa Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Ba1 Ba2 Ba3 B1 B2206 Rating Aaa 89.8% 1.0% 0.5% 1.0% 0.5%7 from: Aa1 71.4% 14.3% 14.3%65 Aa2 3.1% 70.8% 4.6% 3.1% 1.5% 3.1% 1.5% 4.6%16 Aa3 81.3% 6.3% 6.3%11 A1 18.2% 63.6% 9.1%14 A2 71.4% 21.4%30 A3 3.3% 70.0% 3.3% 3.3% 3.3% 3.3%10 Baa1 10.0% 60.0% 10.0% 10.0% 10.0%73 Baa2 72.6% 1.4% 6.8% 1.4% 1.4% 5.5%39 Baa3 69.2% 2.6% 2.6% 7.7%17 Ba1 5.9% 58.8% 5.9%18 Ba2 83.3%26 Ba3 92.3%11 B1 90.9%9 B2 11.1% 11.1% 44.4%16 B3 6.3%4 Caa19 Caa213 Caa315 Ca/C609

Cred

it Mig

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O N

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r US

and E

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ean Transactions

Mo

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y’s Investors S

ervice • 47

3 Caa1 Caa2 Caa3 Ca/C WR15.2%12.5%11.3%27.3%24.1%11.5%17.4%

1.8% 12.3%10.9%

3.8% 19.2%13.8%15.4%100.0%

4.0% 8.0%00.0%

57.1% 42.9%100.0%100.0%

Table 26

Weighted Average One-Year Credit Rating Migration MatrixEmerging Markets CDOs (U.S. $ denominated) for the 12 Year Period 1996-2007

Rating to:Count Aaa Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Ba1 Ba2 Ba3 B1 B2 B191 Rating Aaa 84.8%16 from: Aa1 81.3% 6.3%62 Aa2 4.8% 1.6% 74.2% 8.1%11 Aa3 9.1% 54.5% 9.1%29 A1 6.9% 3.4% 65.5%26 A2 3.8% 3.8% 73.1% 3.8% 3.8%23 A3 4.3% 78.3%11 Baa1 100.0%57 Baa2 1.8% 84.2%46 Baa3 2.2% 4.3% 69.6% 2.2% 4.3% 2.2% 2.2% 2.2%26 Ba1 76.9%29 Ba2 6.9% 75.9% 3.4%13 Ba3 76.9% 7.7%1 B125 B2 88.0%7 B3 1

Caa17 Caa21 Caa35 Ca/C586

00-2007

B2 B3 Caa1 Caa2 Caa3 WR13.9%18.8%3.3%

13.3%7.5%5.6%10.0%13.9%25.0%10.3%

10.0%

48 • Mo

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Table 27

Weighted Average One-Year Credit Rating Migration MatrixBalance Sheet Cash Flow CDOs (Non-U.S. $ denominated) for the 8 Year Period 20

Rating to:Count Aaa Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Ba1 Ba2 Ba3 B1166 Rating Aaa 85.5% 0.6%16 from: Aa1 6.3% 75.0%30 Aa2 6.7% 90.0%24 Aa3 8.3% 4.2% 83.3% 4.2%30 A1 3.3% 80.0% 3.3%53 A2 1.9% 1.9% 1.9% 84.9% 1.9%18 A3 5.6% 83.3% 5.6%10 Baa1 10.0% 80.0%36 Baa2 2.8% 2.8% 77.8% 2.8%8 Baa3 12.5% 50.0% 12.5%29 Ba1 3.4% 86.2%10 Ba2 10.0% 20.0% 70.0%10 Ba3 10.0% 10.0% 70.0%

B1B2B3

440

Cred

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O N

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r US

and E

urop

ean Transactions

Mo

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ance

Caa1 Caa2 Caa3 Ca C

16.7% 33.3% 16.7%

100.0%

Table 28a

Cumulative Downgrade Transition Matrix — Lowest Rating Assigned Since Issu1997 Vintage Arbitrage Cash Flow CLOs (U.S. $ denominated)

Lowest Rating Ever Assigned:Count Aaa Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Ba1 Ba2 Ba3 B1 B2 B35 Initial Aaa 100.0%1 Rating: Aa1 100.0%3 Aa2 66.7% 33.3%2 Aa3 50.0% 50.0%

A1A2A3Baa1Baa2

6 Baa3 16.7% 16.7%Ba1Ba2

1 Ba3B1B2B3

18

ssuance

B3 Caa1 Caa2 Caa3 Ca C

50.0%16.7% 8.3% 8.3%

33.3% 33.3%33.3% 33.3% 33.3%

50.0% 50.0%0%

50 • Mo

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Table 28b

Cumulative Downgrade Transition Matrix — Lowest Rating Assigned Since I1998 Vintage Arbitrage Cash Flow CLOs (U.S. $ denominated)

Lowest Rating Ever Assigned:Count Aaa Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Ba1 Ba2 Ba3 B1 B216 Initial Aaa 93.8% 6.3%

Rating: Aa17 Aa2 57.1% 28.6% 14.3%1 Aa3 100.0%

A1A2

3 A3 100.0%Baa1

4 Baa2 25.0% 25.0%12 Baa3 16.7% 33.3% 8.3% 8.3%

Ba13 Ba2 33.3%3 Ba32 B11 B2 100.

B352

Cred

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O N

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r US

and E

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ean Transactions

Mo

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nce

3 Caa1 Caa2 Caa3 Ca C

11.1%

00.0%

Table 28c

Cumulative Downgrade Transition Matrix — Lowest Rating Assigned Since Issua1999 Vintage Arbitrage Cash Flow CLOs (U.S. $ denominated)

Lowest Rating Ever Assigned:Count Aaa Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Ba1 Ba2 Ba3 B1 B2 B26 Initial Aaa 100.0%2 Rating: Aa1 100.0%6 Aa2 100.0%4 Aa3 100.0%

A1A2

8 A3 100.0%3 Baa1 100.0%12 Baa2 91.7% 8.3%5 Baa3 100.0%

Ba11 Ba2 100.0%9 Ba3 88.9%

B11 B2 100.0%2 B3 179

ssuance


5.0%

11.1%% 10.0% 10.0%

52 • Mo

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ns

Table 28d


Lowest Rating Ever Assigned:Count Aaa Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Ba1 Ba2 Ba3 B1 B235 Initial Aaa 100.0%1 Rating: Aa1 100.0%7 Aa2 85.7% 14.3%5 Aa3 80.0% 20.0%

A11 A2 100.0%15 A3 86.7% 6.7% 6.7%2 Baa1 100.0%20 Baa2 80.0% 5.0% 10.0%2 Baa3 100.0%

Ba19 Ba2 77.8% 11.1%10 Ba3 60.0% 10.0% 10.0

B1B2B3

107

Cred

it Mig

ration o

f CD

O N

otes, 1996 - 2007, fo

r US

and E

urop

ean Transactions

Mo

od

y’s Investors S

ervice • 53

nce


Table 28e


Lowest Rating Ever Assigned:Count Aaa Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Ba1 Ba2 Ba3 B1 B2 B24 Initial Aaa 100.0%

Rating: Aa12 Aa2 100.0%8 Aa3 100.0%2 A1 100.0%2 A2 100.0%13 A3 100.0%

Baa114 Baa2 100.0%3 Baa3 100.0%

Ba18 Ba2 87.5% 12.5%9 Ba3 100.0%

B1B2B3

85

ssuance


54 • Mo

od

y’s Investors S

erviceC

redit M

igratio

n of C

DO

No

tes, 1996 - 2007, for U

S and

Euro

pean Transactio

ns

Table 28f


Lowest Rating Ever Assigned:Count Aaa Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Ba1 Ba2 Ba3 B1 B242 Initial Aaa 100.0%1 Rating: Aa1 100.0%16 Aa2 100.0%2 Aa3 100.0%8 A1 100.0%19 A2 100.0%9 A3 100.0%2 Baa1 100.0%30 Baa2 100.0%1 Baa3 100.0%2 Ba1 100.0%23 Ba2 100.0%1 Ba3 100.0%

B1B2B3

156

Cred

it Mig

ration o

f CD

O N

otes, 1996 - 2007, fo

r US

and E

urop

ean Transactions

Mo

od

y’s Investors S

ervice • 55

nce


Table 28g


Lowest Rating Ever Assigned:Count Aaa Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Ba1 Ba2 Ba3 B1 B2 B56 Initial Aaa 100.0%5 IRating: Aa1 100.0%24 Aa2 100.0%2 Aa3 100.0%8 A1 100.0%33 A2 100.0%2 A3 100.0%

Baa138 Baa2 100.0%2 Baa3 100.0%5 Ba1 100.0%23 Ba2 100.0%2 Ba3 100.0%

B1B2B3

200

ssuance


56 • Mo

od

y’s Investors S

erviceC

redit M

igratio

n of C

DO

No

tes, 1996 - 2007, for U

S and

Euro

pean Transactio

ns

Table 28h


Lowest Rating Ever Assigned:Count Aaa Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Ba1 Ba2 Ba3 B1 B285 Initial Aaa 100.0%7 Rating: Aa1 100.0%30 Aa2 100.0%

Aa311 A1 100.0%51 A2 100.0%1 A3 100.0%2 Baa1 100.0%55 Baa2 100.0%

Baa33 Ba1 100.0%27 Ba2 100.0%1 Ba3 100.0%

B1B2B3

273

Cred

it Mig

ration o

f CD

O N

otes, 1996 - 2007, fo

r US

and E

urop

ean Transactions

Mo

od

y’s Investors S

ervice • 57

nce


Table 28i


Lowest Rating Ever Assigned:Count Aaa Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Ba1 Ba2 Ba3 B1 B2 B113 Initial Aaa 100.0%13 Rating: Aa1 100.0%79 Aa2 100.0%

Aa35 A1 100.0%87 A2 100.0%3 A3 100.0%1 Baa1 100.0%81 Baa2 100.0%10 Baa3 100.0%1 Ba1 100.0%52 Ba2 100.0%1 Ba3 100.0%

B12 B2 100.0%

B3448

ssuance


100.0%

58 • Mo

od

y’s Investors S

erviceC

redit M

igratio

n of C

DO

No

tes, 1996 - 2007, for U

S and

Euro

pean Transactio

ns

Table 28j


Lowest Rating Ever Assigned:Count Aaa Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Ba1 Ba2 Ba3 B1 B2187 Initial Aaa 100.0%36 Rating: Aa1 100.0%143 Aa2 100.0%

Aa31 A1 100.0%153 A2 100.0%1 A3 100.0%

Baa1134 Baa2 100.0%13 Baa3 100.0%

Ba1110 Ba2 100.0%6 Ba3 100.0%

B1B2

1 B3785

Cred

it Mig

ration o

f CD

O N

otes, 1996 - 2007, fo

r US

and E

urop

ean Transactions

Mo

od

y’s Investors S

ervice • 59


7.1% 21.4% 35.7%

100.0%

100.0%5.9% 29.4% 52.9% 11.8%

100.0%100.0%

100.0%100.0%100.0%

Table 29a

Cumulative Transition Matrix1997 Vintage Arbitrage Cash Flow CBOs (U.S. $ denominated)

Rating as of 12/31/07:Count Aaa Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Ba1 Ba2 Ba3 B1 B2 B34 Initial Aaa 25.0%2 Rating: Aa1 50.0% 50.0%14 Aa2 7.1% 7.1% 7.1% 7.1% 7.1%1 Aa3 100.0%

A11 A2

A3Baa1

2 Baa217 Baa3

Ba12 Ba21 Ba34 B11 B21 B350


100.0%11.1% 11.1%

33.3%

100.0%33.3%

16.7% 16.7% 16.7%5.3% 10.5% 26.3% 26.3% 26.3%

33.3% 33.3% 22.2%57.1% 42.9%

100.0%100.0%

60 • Mo

od

y’s Investors S

erviceC

redit M

igratio

n of C

DO

No

tes, 1996 - 2007, for U

S and

Euro

pean Transactio

ns

Table 29b


Rating as of 12/31/07:Count Aaa Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Ba1 Ba2 Ba3 B1 B2 B319 Initial Aaa 42.1% 5.3%1 Rating: Aa19 Aa2 22.2% 11.1% 11.1% 22.2% 11.1%3 Aa3 33.3% 33.3%

A11 A23 A3 33.3% 33.3%

Baa16 Baa2 16.7% 16.7% 16.7%19 Baa3 5.3%

Ba1Ba2

9 Ba3 11.1%7 B11 B21 B379

Cred

it Mig

ration o

f CD

O N

otes, 1996 - 2007, fo

r US

and E

urop

ean Transactions

Mo

od

y’s Investors S

ervice • 61

Caa1 Caa2 Caa3 Ca C WR1.5% 53.8%

30.8%14.3% 14.3%

100.0%9.1% 18.2% 9.1% 27.3%

50.0%7.1% 35.7% 21.4% 25.0%

8.3% 25.0% 25.0% 16.7%100.0%

33.3% 33.3% 33.3%8.3% 58.3% 33.3%14.3% 78.6% 7.1%

Table 29c


Rating as of 12/31/07:Count Aaa Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Ba1 Ba2 Ba3 B1 B2 B365 Initial Aaa 40.0% 1.5% 1.5% 1.5%5 Rating: Aa1 20.0% 20.0% 20.0% 20.0% 20.0%13 Aa2 15.4% 15.4% 15.4% 7.7% 7.7% 7.7%7 Aa3 28.6% 14.3% 14.3% 14.3%

A11 A211 A3 9.1% 9.1% 18.2%2 Baa1 50.0%28 Baa2 3.6% 3.6% 3.6%12 Baa3 16.7% 8.3%1 Ba19 Ba212 Ba314 B1

B2B3

180


40.0%

8.3% 41.7%

% 4.2% 4.2% 16.7% 8.3% 25.0%100.0%

% 5.6% 5.6% 44.4% 27.8%11.1% 22.2% 22.2% 33.3%

100.0%

62 • Mo

od

y’s Investors S

erviceC

redit M

igratio

n of C

DO

No

tes, 1996 - 2007, for U

S and

Euro

pean Transactio

ns

Table 29d


Rating as of 12/31/07:Count Aaa Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Ba1 Ba2 Ba3 B1 B2 B338 Initial Aaa 36.8% 2.6% 2.6%

Rating: Aa15 Aa2 20.0% 20.0% 20.0%2 Aa3 50.0% 50.0%

A11 A2 100.0%12 A3 8.3% 8.3% 8.3% 8.3% 8.3% 8.3%1 Baa1 100.0%24 Baa2 4.2% 4.2% 4.2% 4.2% 4.2% 8.3% 8.3% 4.24 Baa3

Ba118 Ba2 5.6% 5.6% 5.69 Ba3 11.1%1 B11 B2 100.0%

B3116

Cred

it Mig

ration o

f CD

O N

otes, 1996 - 2007, fo

r US

and E

urop

ean Transactions

Mo

od

y’s Investors S

ervice • 63


70.0%25.0%

100.0%55.6%100.0%50.0%33.3%100.0%

5.9% 5.9% 5.9% 47.1%40.0% 10.0% 40.0%

100.0%

Table 29e


Rating as of 12/31/07:Count Aaa Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Ba1 Ba2 Ba3 B1 B2 B337 Initial Aaa 40.5% 5.4% 2.7%

Rating: Aa110 Aa2 10.0% 10.0% 10.0%4 Aa3 25.0% 25.0% 25.0%

A11 A29 A3 11.1% 11.1% 11.1% 11.1%2 Baa128 Baa2 3.6% 17.9% 3.6% 7.1% 17.9%3 Baa3 33.3% 33.3%2 Ba117 Ba2 17.6% 5.9% 11.8%10 Ba3 10.0%1 B1 100.0%

B21 B3125


66.7%

66.7%50.0%100.0%33.3%

50.0%

100.0%

64 • Mo

od

y’s Investors S

erviceC

redit M

igratio

n of C

DO

No

tes, 1996 - 2007, for U

S and

Euro

pean Transactio

ns

Table 29f


Rating as of 12/31/07:Count Aaa Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Ba1 Ba2 Ba3 B1 B28 Initial Aaa 50.0%

Rating: Aa13 Aa2 33.3%

Aa3A1

3 A2 33.3%2 A3 50.0%2 Baa13 Baa2 66.7%

Baa3Ba1

2 Ba2 50.0%Ba3

1 B1B2B3

24

Cred

it Mig

ration o

f CD

O N

otes, 1996 - 2007, fo

r US

and E

urop

ean Transactions

Mo

od

y’s Investors S

ervice • 65


100.0%

50.0%

100.0%

Table 29g


Rating as of 12/31/07:Count Aaa Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Ba1 Ba2 Ba3 B1 B2 B33 Initial Aaa 66.7%


Aa32 A1 100.0%1 A21 A3 100.0%

Baa12 Baa2 50.0%

Baa3Ba1Ba2

1 Ba3B1B2B3

12


66 • Mo

od

y’s Investors S

erviceC

redit M

igratio

n of C

DO

No

tes, 1996 - 2007, for U

S and

Euro

pean Transactio

ns

Table 29h




Aa3A1

2 A2 100.0%A3Baa1

2 Baa2 100.0%Baa3Ba1Ba2Ba3B1B2B3

7

Cred

it Mig

ration o

f CD

O N

otes, 1996 - 2007, fo

r US

and E

urop

ean Transactions

Mo

od

y’s Investors S

ervice • 67

Caa1 Caa2 Caa3 Ca C WR80.0%100.0%66.7%100.0%

16.7% 16.7% 50.0%

100.0%

Table 30a

Cumulative Transition Matrix1997 Vintage Arbitrage Cash Flow CLOs (U.S. $ denominated)

Rating as of 12/31/07:Count Aaa Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Ba1 Ba2 Ba3 B1 B2 B35 Initial Aaa 20.0%1 Rating: Aa13 Aa2 33.3%2 Aa3

A1A2A3Baa1Baa2

6 Baa3 16.7%Ba1Ba2

1 Ba3B1B2B3

18


100.0%100.0%

100.0%

50.0% 50.0%8.3% 8.3% 58.3%

33.3% 33.3% 33.3%33.3% 33.3% 33.3%50.0% 50.0%

100.0%

68 • Mo

od

y’s Investors S

erviceC

redit M

igratio

n of C

DO

No

tes, 1996 - 2007, for U

S and

Euro

pean Transactio

ns

Table 30b



Rating: Aa17 Aa21 Aa3

A1A2

3 A3Baa1

4 Baa212 Baa3 8.3% 8.3% 8.3%

Ba13 Ba23 Ba32 B11 B2

B352

Cred

it Mig

ration o

f CD

O N

otes, 1996 - 2007, fo

r US

and E

urop

ean Transactions

Mo

od

y’s Investors S

ervice • 69

Caa1 Caa2 Caa3 Ca C WR80.8%100.0%100.0%100.0%

50.0%66.7%58.3%80.0%

100.0%11.1% 66.7%

100.0%50.0%

Table 30c


Rating as of 12/31/07:Count Aaa Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Ba1 Ba2 Ba3 B1 B2 B326 Initial Aaa 19.2%2 Rating: Aa16 Aa24 Aa3

A1A2

8 A3 12.5% 12.5% 12.5% 12.5%3 Baa1 33.3%12 Baa2 16.7% 25.0%5 Baa3 20.0%

Ba11 Ba29 Ba3 22.2%

B11 B22 B3 50.0%79


42.9%80.0%

73.3%100.0%65.0%100.0%

66.7%10.0% 10.0% 60.0%

70 • Mo

od

y’s Investors S

erviceC

redit M

igratio

n of C

DO

No

tes, 1996 - 2007, for U

S and

Euro

pean Transactio

ns

Table 30d


Rating as of 12/31/07:Count Aaa Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Ba1 Ba2 Ba3 B1 B235 Initial Aaa 20.0%1 Rating: Aa1 100.0%7 Aa2 42.9% 14.3%5 Aa3 20.0%

A11 A2 100.0%15 A3 20.0% 6.7%2 Baa120 Baa2 5.0% 5.0% 5.0% 10.0% 5.0% 5.0%2 Baa3

Ba19 Ba2 11.1% 11.1% 11.1%10 Ba3 10.0% 10.0%

B1B2B3

107

Cred

it Mig

ration o

f CD

O N

otes, 1996 - 2007, fo

r US

and E

urop

ean Transactions

Mo

od

y’s Investors S

ervice • 71


100.0%75.0%

100.0%76.9%

64.3%100.0%

62.5%77.8%

Table 30e


Rating as of 12/31/07:Count Aaa Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Ba1 Ba2 Ba3 B1 B2 B324 Initial Aaa 25.0%

Rating: Aa12 Aa28 Aa3 25.0%2 A1 50.0% 50.0%2 A213 A3 7.7% 15.4%

Baa114 Baa2 7.1% 28.6%3 Baa3

Ba18 Ba2 12.5% 25.0%9 Ba3 22.2%

B1B2B3

85


68.8%50.0%50.0%57.9%55.6%50.0%53.3%100.0%100.0%56.5%100.0%

72 • Mo

od

y’s Investors S

erviceC

redit M

igratio

n of C

DO

No

tes, 1996 - 2007, for U

S and

Euro

pean Transactio

ns

Table 30f


Rating as of 12/31/07:Count Aaa Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Ba1 Ba2 Ba3 B1 B2 B342 Initial Aaa 45.2%1 Rating: Aa1 100.0%16 Aa2 31.3%2 Aa3 50.0%8 A1 50.0%19 A2 5.3% 36.8%9 A3 44.4%2 Baa1 50.0%30 Baa2 3.3% 43.3%1 Baa32 Ba123 Ba2 43.5%1 Ba3

B1B2B3

156

Cred

it Mig

ration o

f CD

O N

otes, 1996 - 2007, fo

r US

and E

urop

ean Transactions

Mo

od

y’s Investors S

ervice • 73

Caa1 Caa2 Caa3 Ca C WR23.2%20.0%20.8%100.0%25.0%21.2%50.0%

21.1%

20.0%21.7%100.0%

Table 30g


Rating as of 12/31/07:Count Aaa Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Ba1 Ba2 Ba3 B1 B2 B356 Initial Aaa 76.8%5 Rating: Aa1 80.0%24 Aa2 79.2%2 Aa38 A1 12.5% 62.5%33 A2 78.8%2 A3 50.0%

Baa138 Baa2 78.9%2 Baa3 100.0%5 Ba1 80.0%23 Ba2 78.3%2 Ba3

B1B2B3

200

B3 Caa1 Caa2 Caa3 Ca C WR1.2%14.3%

2.0%

3.6%

74 • Mo

od

y’s Investors S

erviceC

redit M

igratio

n of C

DO

No

tes, 1996 - 2007, for U

S and

Euro

pean Transactio

ns

Table 30h


Rating as of 12/31/07:Count Aaa Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Ba1 Ba2 Ba3 B1 B285 Initial Aaa 98.8%7 Rating: Aa1 85.7%30 Aa2 100.0%

Aa311 A1 100.0%51 A2 98.0%1 A3 100.0%2 Baa1 100.0%55 Baa2 96.4%

Baa33 Ba1 100.0%27 Ba2 100.0%1 Ba3 100.0%

B1B2B3

273

Cred

it Mig

ration o

f CD

O N

otes, 1996 - 2007, fo

r US

and E

urop

ean Transactions

Mo

od

y’s Investors S

ervice • 75


Table 30i



Aa35 A1 100.0%87 A2 100.0%3 A3 100.0%1 Baa1 100.0%81 Baa2 100.0%10 Baa3 100.0%1 Ba1 100.0%52 Ba2 100.0%1 Ba3 100.0%

B12 B2 100.0%

B3448


100.0%

76 • Mo

od

y’s Investors S

erviceC

redit M

igratio

n of C

DO

No

tes, 1996 - 2007, for U

S and

Euro

pean Transactio

ns

Table 30j



Aa31 A1 100.0%153 A2 100.0%1 A3 100.0%

Baa1134 Baa2 100.0%13 Baa3 100.0%

Ba1110 Ba2 100.0%6 Ba3 100.0%

B1B2

1 B3785

Cred

it Mig

ration o

f CD

O N

otes, 1996 - 2007, fo

r US

and E

urop

ean Transactions

Mo

od

y’s Investors S

ervice • 77

aa1 Caa2 Caa3 Ca C WR.1% 0.1% 8.4%

7.1%.2% 0.5% 0.5% 0.2% 0.1% 6.4%.6% 1.0% 0.3% 0.3% 9.9%

0.6% 17.4%.5% 0.6% 0.7% 1.7% 0.1% 5.6%.9% 0.3% 0.9% 0.6% 11.4%

1.8% 3.7% 15.6%.5% 1.0% 1.8% 3.1% 0.2% 7.8%.5% 3.0% 7.1% 1.5% 12.1%.5% 3.8% 4.4% 13.2% 1.9% 13.2%.8% 0.8% 0.8% 1.3% 0.8% 7.7%

2.6% 1.3% 25.0%3.7% 3.7% 3.7% 29.6%

.3% 3.3% 16.7%4.3% 4.3% 17.4%

6.7% 5.6% 16.7%52.4% 4.8% 9.5% 23.8%

76.2% 4.8% 9.5% 4.8%93.0% 5.8%

0.9% 88.9% 10.3%

Table 31

One-Year Credit Rating Migration MatrixFifteen CDO Categories Combined Into One CDO Category, 1/1/07 to 12/31/07

Rating as of 12/31/07:Count Aaa Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Ba1 Ba2 Ba3 B1 B2 B3 C2661 Rating Aaa 87.9% 0.4% 0.3% 0.3% 0.2% 0.4% 0.3% 0.2% 0.2% 0.3% 0.3% 0.1% 0.1% 0.1% 0.1% 0.1% 0280 as of 1/1/07: Aa1 3.6% 85.4% 2.1% 0.7% 0.4% 0.7%1075 Aa2 0.5% 1.1% 84.2% 0.2% 0.5% 1.1% 1.4% 0.5% 0.7% 0.8% 0.5% 0.2% 0.2% 0.1% 0.4% 0312 Aa3 0.3% 0.6% 3.5% 70.5% 2.2% 2.2% 1.3% 1.0% 1.0% 1.6% 1.3% 0.3% 0.3% 0.6% 0.6% 0.3% 0178 A1 0.6% 2.2% 1.1% 1.7% 71.9% 1.1% 0.6% 1.1% 0.6% 0.6% 0.6%950 A2 0.1% 0.4% 0.2% 0.7% 79.1% 0.3% 0.5% 2.1% 2.3% 1.8% 1.3% 1.1% 0.3% 0.1% 0.4% 0334 A3 0.3% 0.3% 0.9% 0.6% 2.1% 72.8% 0.6% 1.2% 1.5% 0.6% 3.3% 0.9% 0.3% 0.3% 0.3% 0109 Baa1 1.8% 1.8% 0.9% 4.6% 60.6% 0.9% 3.7% 0.9% 2.8% 0.9%960 Baa2 0.1% 0.1% 0.1% 0.1% 0.3% 0.3% 0.3% 74.8% 0.5% 0.7% 2.2% 2.7% 1.7% 0.9% 0.6% 0198 Baa3 0.5% 1.0% 1.0% 61.1% 1.0% 3.0% 3.5% 2.0% 2.5% 0159 Ba1 0.6% 0.6% 45.9% 1.3% 0.6% 6.9% 3.1% 1.9% 2377 Ba2 0.3% 0.3% 0.3% 0.8% 0.8% 83.0% 0.8% 0.8% 0.8% 076 Ba3 1.3% 63.2% 1.3% 1.3% 3.9%27 B1 3.7% 3.7% 51.9%30 B2 3.3% 73.3% 323 B3 4.3% 4.3% 65.2%18 Caa1 5.6% 5.6% 621 Caa2 4.8% 4.8%21 Caa3 4.8%86 Ca 1.2%117 C8012

B1 B2 B3 Caa/C WR0.1% 8.7%

0.1% 7.2%0.1% 0.1% 0.5% 5.9%0.5% 0.2% 0.1% 0.7% 9.0%0.2% 0.2% 0.2% 0.2% 8.6%0.1% 0.3% 0.3% 1.6% 6.3%0.4% 0.3% 0.1% 1.1% 9.2%0.3% 0.4% 0.4% 3.0% 9.3%1.2% 0.6% 0.7% 2.9% 6.7%2.0% 1.0% 1.6% 5.5% 8.6%5.2% 2.6% 1.1% 11.2% 9.2%1.5% 1.9% 1.4% 6.6% 8.0%1.0% 1.9% 3.1% 6.7% 10.7%48.6% 2.1% 5.6% 27.7% 12.7%2.2% 63.0% 0.9% 19.1% 12.2%

0.9% 55.6% 32.9% 9.2%0.4% 0.3% 0.4% 86.9% 11.5%

78 • Mo

od

y’s Investors S

erviceC

redit M

igratio

n of C

DO

No

tes, 1996 - 2007, for U

S and

Euro

pean Transactio

ns

Table 32

Weighted Average One-Year Credit Rating Migration MatrixFifteen CDO Categories Combined Into One CDO Category

Rating to:Count Aaa Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Ba1 Ba2 Ba38407 Rating Aaa 88.5% 0.7% 0.5% 0.3% 0.2% 0.2% 0.2% 0.1% 0.1% 0.1% 0.1%876 from: Aa1 6.3% 80.0% 1.8% 1.6% 0.6% 0.6% 0.4% 0.3% 0.1% 0.2% 0.3% 0.4%3155 Aa2 1.3% 1.2% 84.1% 1.7% 1.4% 0.9% 0.9% 0.6% 0.4% 0.6% 0.2% 0.1% 0.1%1034 Aa3 2.6% 0.3% 1.0% 73.4% 2.7% 2.1% 2.0% 1.3% 0.7% 1.8% 0.8% 0.5% 0.4%744 A1 2.0% 1.3% 1.6% 1.2% 77.3% 1.0% 1.9% 1.5% 0.8% 1.2% 0.6% 0.2% 0.1%2321 A2 0.9% 0.3% 0.6% 0.5% 0.7% 80.4% 1.1% 0.9% 1.5% 2.1% 0.9% 0.9% 0.7%1419 A3 0.5% 0.4% 0.5% 0.7% 1.1% 1.1% 76.2% 1.4% 2.0% 1.8% 1.2% 1.1% 0.8%539 Baa1 1.4% 0.7% 0.1% 1.2% 0.7% 0.8% 72.6% 1.1% 3.7% 2.1% 1.3% 0.9%3332 Baa2 0.1% 0.1% 0.2% 0.2% 0.3% 0.6% 0.5% 79.8% 1.8% 1.5% 1.3% 1.3%1237 Baa3 0.3% 0.1% 0.1% 0.1% 0.2% 0.3% 0.3% 0.3% 0.6% 72.0% 1.6% 2.2% 3.1%558 Ba1 0.2% 0.2% 0.2% 0.2% 0.3% 0.2% 1.3% 0.8% 0.5% 64.5% 1.4% 0.9%1502 Ba2 0.1% 0.2% 0.3% 1.2% 1.0% 76.0% 1.7%682 Ba3 0.2% 0.1% 0.2% 0.2% 1.0% 0.5% 0.5% 74.1%281 B1 0.1% 0.1% 0.8% 0.1% 0.2% 1.5% 0.6%250 B2 0.4% 0.2% 1.9%222 B3 0.2% 0.8% 0.4%1355 Caa/C 0.2% 0.2%27914

Cred

it Mig

ration o

f CD

O N

otes, 1996 - 2007, fo

r US

and E

urop

ean Transactions

Mo

od

y’s Investors S

ervice • 79

s

B1 B2 B3 Caa/C Default

0.2%

0.2%

0.3%0.3%

0.6% 0.6% 0.6% 2.4%2.4% 1.2% 1.2%5.8% 5.3%72.1% 10.5% 2.2% 0.7%10.0% 68.2% 10.8% 7.3%1.8% 7.4% 72.3% 17.9%0.8% 2.0% 9.4% 80.4% 7.3%

Table 33

Moody's Corporate Ratings 1/1/07 to 12/31/07, Adjusted for Withdrawn RatingRating as of 12/31/07:Aaa Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Ba1 Ba2 Ba3

Rating Aaa 94.9% 4.0% 0.6% 0.6%as of 1/1/07: Aa1 0.9% 93.6% 5.6%

Aa2 0.5% 7.3% 87.6% 0.9% 3.7%Aa3 0.4% 0.9% 5.0% 88.2% 3.6% 1.1% 0.5% 0.2%A1 0.3% 1.5% 2.9% 92.8% 2.0% 0.5%A2 0.5% 3.2% 4.4% 83.3% 6.9% 1.5%A3 0.3% 0.3% 8.5% 80.8% 7.5% 1.9% 0.5% 0.3%Baa1 0.9% 7.6% 86.5% 2.6% 0.9% 1.5%Baa2 0.3% 0.8% 6.0% 86.8% 4.9% 0.5% 0.3%Baa3 0.3% 1.3% 10.7% 83.4% 2.9% 0.6% 0.3%Ba1 1.2% 7.3% 76.4% 4.8% 6.1%Ba2 4.7% 8.3% 71.6% 10.7%Ba3 1.5% 2.4% 12.6% 72.3%B1 0.4% 0.4% 1.1% 2.9% 9.8%B2 0.3% 0.5% 3.0%B3 0.5%Caa/C

r Withdrawn Ratings

3 B1 B2 B3 Caa/C Default

0.1%

0.1%

% 0.4% 0.1% 0.1%% 0.5% 0.2% 0.3% 0.1%% 0.8% 0.5% 0.3% 0.4% 0.3%% 1.6% 0.7% 0.5% 1.1% 0.2%

.0% 3.6% 1.5% 0.9% 0.9% 0.5%

.9% 9.8% 4.6% 1.4% 1.4% 0.9%% 63.0% 12.2% 3.9% 3.2% 1.2%% 10.5% 65.4% 10.1% 7.3% 2.8%% 3.0% 11.1% 63.6% 15.8% 5.1%% 1.2% 2.7% 9.9% 73.1% 12.4%

80 • Mo

od

y’s Investors S

erviceC

redit M

igratio

n of C

DO

No

tes, 1996 - 2007, for U

S and

Euro

pean Transactio

ns

Table 34

Corporate Ratings for the 12 Years 1996-2007, Using CDO Note Weights and Adjusted foRating to:Aaa Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Ba1 Ba2 Ba

Rating Aaa 96.0% 2.1% 1.3% 0.2% 0.2% 0.1%from: Aa1 2.3% 88.5% 3.4% 5.5% 0.2% 0.1%

Aa2 0.4% 6.0% 87.4% 3.7% 2.1% 0.4%Aa3 0.1% 0.9% 4.5% 86.9% 4.9% 1.9% 0.5% 0.2%A1 0.1% 0.1% 0.8% 4.8% 86.9% 5.5% 1.4% 0.3%A2 0.2% 0.4% 2.0% 4.9% 82.8% 7.0% 1.8% 0.4% 0.2% 0.1%A3 0.1% 0.2% 0.1% 0.1% 2.4% 7.1% 79.4% 7.0% 2.3% 1.0% 0.3%Baa1 0.1% 0.1% 0.3% 1.9% 7.7% 78.2% 7.3% 2.2% 1.1% 0.2% 0.1Baa2 0.1% 0.1% 0.2% 0.4% 2.5% 6.8% 79.6% 6.9% 1.2% 0.4% 0.7Baa3 0.1% 0.1% 0.1% 0.2% 0.7% 3.0% 9.0% 76.1% 5.0% 2.3% 1.3Ba1 0.1% 0.3% 0.2% 0.9% 3.0% 12.6% 66.9% 6.7% 5.2Ba2 0.1% 0.1% 0.4% 1.1% 4.2% 12.2% 64.6% 10Ba3 0.1% 0.1% 0.2% 0.2% 0.3% 1.0% 3.8% 10.4% 65B1 0.1% 0.1% 0.2% 1.0% 5.4% 9.6B2 0.1% 0.1% 0.2% 0.1% 0.1% 0.4% 0.5% 2.4B3 0.1% 0.1% 0.1% 0.1% 0.2% 0.7Caa/C 0.1% 0.2% 0.1% 0.2% 0.1


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