Fitch Eyes U.S. Capital CDOs

Three classes of notes issued by U.S. Capital Funding V Ltd./Corp. and U.S. Capital Funding VI Ltd./Corp., collateralized debt obligations backed partly by the subordinated debt of a finance company specializing in residential mortgage lending, have been placed on Rating Watch Negative by Fitch Ratings.The affected classes are class C of U.S. Capital V and classes C-1 and C-2 of U.S. Capital Funding VI. The mortgage-linked debt includes middle-market and leveraged loans and minority allocations to subordinated debt issued by a specialty finance company, U.S. Capital said. In addition, the affected notes are backed chiefly by trust preferred securities and subordinated debt issued by banks and thrifts. Regarding the finance company, "the likelihood and timing of ongoing interest and principal payments will be dependent upon the performance of the company's portfolio of assets," Fitch said. "Uncertainty with respect to the performance of these underlying assets increases the potential for a rating action to the class C notes of both CDO transactions."