Four classes of notes and one class of preference shares issued by McKinley Funding III Ltd., a collateralized debt obligation backed partly by residential mortgage-backed securities, have been downgraded by Moody's Investors Service.The downgrades were as follows: class A-2, from Aaa to A2 (and left on review for possible further downgrade); class B-l, from Aa2 to Caa3 (and left on review for possible further downgrade); class B-2, from Aa3 to Ca; class C, from Baa2 to Ca; and preference shares, from Ba1 to Ca. Moody's said the negative rating actions reflect "severe deterioration" in the credit quality of the underlying portfolio, as well as a Dec. 10 event of default caused by the failure of the class A overcollateralization ratio to equal or exceed 100%, as required under the indenture.

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