MBS-Backed CDOs Downgraded

Fitch Ratings has downgraded 10 classes of notes and preference shares from two collateralized debt obligations backed partly by mortgage-backed securities. The affected securities are four classes of notes and one class of preference shares issued by Enhanced Mortgage Backed Securities Fund III Ltd., and four classes of notes and one class of preference shares issued by Enhanced Mortgage Backed Securities Fund IV Ltd. Both are mortgage market value CDOs. Fitch attributed the downgrades to "significant" declines in the net asset values of the CDOs, putting them "closer to hitting the class C and class D trigger levels." If the triggers are breached, the transactions "would be forced to sell assets, which would result in the realization of further losses," the rating agency said.