OREANDA-NEWS. Fitch Ratings has affirmed 51 and upgraded 4 tranches from 14 structured finance collateralized debt obligations (SF CDOs) with exposure to various structured finance assets.

KEY RATING DRIVERS
Thirty-nine classes affirmed at 'Csf' have credit enhancement (CE) levels that are exceeded by the expected losses (EL) from the distressed collateral (rated 'CCsf' and lower) of each portfolio. For these classes, the probability of default was evaluated without factoring potential losses from the performing assets. In the absence of mitigating factors, default for these notes at or prior to maturity continues to appear inevitable.

Two classes have been affirmed at 'CCsf' as default remains probable. The class' current CE levels exceed the EL; however, their CE is lower than the losses projected at the 'CCCsf' rating stress under Fitch's Structured Finance Portfolio Credit Model (SF PCM) analysis.

Three classes have been affirmed at 'CCCsf'. The class' current CE exceeds the losses projected at the 'CCCsf' rating stress in the SF PCM analysis, but fall below the losses projected at the 'Bsf' rating stress. The CE of the class B notes of ACA ABS 2004-1 Limited exceeds the 'B-sf' SF PCM rating loss rate (RLR); however, given the notes' current balance and the portfolio's concentration in defaulted assets, Fitch believes a 'CCCsf' rating reflects this risk more appropriately.

Five classes, affirmed at 'Dsf', are non-deferrable classes that continue to experience interest payment shortfalls.

The certificates in Blue Heron Funding II, Ltd. and Blue Heron Funding IX, Ltd. have been affirmed at their current rating of 'AAAsf'/Stable Outlook. The rating assigned to these certificates is based on the rating of the principal protection assets, which are zero coupon bonds issued by Resolution Funding Corporation, a U.S. government-backed entity. The bonds are scheduled to mature in April 2030.

The class A-1 notes issued by Ischus CDO I Ltd. received approximately $10.3 million in principal redemptions since the last review. As a result of the amortization, the notes balance has been reduced to approximately $1.1 million and is now supported by approximately $69.8 million of collateral. Fitch expects the principal collections to remain in line with the average monthly principal collections since the last review and expects the notes to be paid in full within the next two to three months. While the CE of the class A-1 notes allow them to pass losses projected at the 'Asf' rating stress in the SF PCM, Fitch believes the notes' short expected life, steady amortization, and high coverage are in line with a 'AAAsf' rating.

The upgrades of the class A-1 (Series 1) and A-1 (Series 2) notes issued by Orchard Park CDO Ltd. to 'Bsf/OutS' from 'CCCsf' and the upgrade of the class B notes issued by Vermeer Funding Ltd./Inc. to 'BBsf'/Stable Outlook' from 'Bsf'/Stable Outlook are attributed to significant deleveraging of the transaction's capital structure, which has resulted in increased CE available to the notes. According to the SF PCM analysis, these classes are now able to withstand losses at higher rating stresses compared to Fitch's previous review.

RATING SENSITIVITIES
Negative migration, defaults beyond those projected, and lower than expected recoveries could lead to downgrades for classes analysed under the SF PCM. Classes already rated 'Csf' have limited sensitivity to further negative migration given their highly distressed rating levels. However, there is potential for non-deferrable classes to be downgraded to 'Dsf' should they experience any interest payment shortfalls.

This review was conducted under the framework described in the reports 'Global Structured Finance Rating Criteria' and 'Global Surveillance Criteria for Structured Finance CDOs'. None of the transactions have been analysed under a cash flow model framework, as the effect of structural features and excess spread available to amortize the notes were determined to be minimal. The individual rating actions are detailed in the report 'Fitch Takes Various Rating Actions on 14 SF CDOs from 2001-2005 Vintages, released and available at 'www.fitchratings.com' by performing a title search or by using the link.

DUE DILIGENCE USAGE
No third-party due diligence was reviewed in relation to this rating action.