Five classes of variable-rate notes issued by Magnolia Finance II PLC, a collateralized debt obligation that references chiefly mortgage-backed security assets, have been downgraded and removed from Rating Watch Negative by Fitch Ratings. The affected notes were from the following asset-backed securities portfolios: series 2006-5A, series 2006-5B, series 2006-5CU, series 2006-5CE, and series 2006-5CG. Fitch said the downgrades reflect "significant collateral deterioration" in the reference portfolio, especially subprime residential MBS, alternative-A RMBS, and structured finance CDOs with underlying exposure to subprime RMBS. Magnolia II is a static, synthetic, structured finance CDO.
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