Fitch Downgrades 3 Classes of South Street CBO 1999-1

NEW YORK--(BUSINESS WIRE)--Fitch Ratings has downgraded three classes of notes issued by South Street CBO 1999-1 Ltd./Corp. (South Street CBO 1999-1). A detailed list of rating actions follows at the end of this release.

This review was conducted under the framework described in the reports 'Global Structured Finance Rating Criteria', 'Global Rating Criteria for Corporate CDOs', 'Global Surveillance Criteria for Corporate CDOs', and 'Criteria for Structured Finance Recovery Ratings'.

The downgrades are the result of missed interest payments on the class A-2 and class A-2L (collectively, class A-2) notes, and on the class A-3 notes at the last payment date in January 2010. According to the indenture, failure to pay timely interest on any of the class A-2, A-2L or A-3 notes constitutes a payment default under the Event of Default (EOD) language.

Additionally, the collateral coverage available in the transaction will be insufficient to pay full principal on any of the notes at maturity. The current notional balance of the class A-2 notes is approximately $42 million, compared to a performing collateral and principal cash balance of only $7 million.

The portfolio also includes approximately $28 million par value of defaulted bonds. The projected recovery value of these assets, based on current market prices, is less than $700,000. South Street CBO 1999-1 remains in an EOD due to the failure to maintain all overcollateralization (OC) ratios at levels at least equal to 90% of their required triggers. The ongoing EOD prevents the collateral manager from disposing of any defaulted assets. Therefore, the issuer will not realize any value from the defaulted assets until either their ultimate recovery or their liquidation at the transaction's stated maturity in 2011, at which time the bonds would be subject to market value risk.

Fitch projects that the class A-2 notes will suffer a principal impairment at maturity. The class A-3 notes may receive one more interest payment, made from principal proceeds, after the two performing bonds mature prior to the next payment date in July 2010. No principal recovery is expected on the class A-3 notes.

Recovery Ratings are based on the total discounted future cash flows of approximately $7 million projected to be available to these bonds in a base-case default scenario. These discounted cash flows result in an ultimate recovery projection of 17% for the class A-2 notes, which is representative of an 'RR5' on Fitch's Recovery Rating scale. Recovery Ratings are designed to provide a forward-looking estimate of recoveries on currently distressed or defaulted structured finance securities rated 'CCC' or below. For further detail on Recovery Ratings, please see Fitch's report 'Global Surveillance Criteria for Corporate CDOs'.

South Street CBO 1999-1 is a cash flow collateralized debt obligation (CDO) that closed on June 3, 1999. The portfolio of South Street CBO 1999-1 was originally selected and monitored by Columbia Management Advisors, LLC (Columbia). In connection with the proposed sale of Columbia to Ameriprise Financial, Inc., Columbia is soliciting noteholder consent to assign management duties to RiverSource Investments LLC, a subsidiary of Ameriprise, in the spring of 2010.

Fitch downgrades the following classes:

--$25,038,718 class A-2 notes to 'D/RR5' from 'CC/RR5';

--$16,692,479 class A-2L notes to 'D/RR5' from 'CC/RR5';

--$45,500,000 class A-3 notes to 'D/RR6' from 'C/RR6'.

These rating actions reflect the application of Fitch's current criteria which are available at 'www.fitchratings.com' and specifically include the following reports:

--'Global Structured Finance Rating Criteria' (Sept. 30, 2009);

--'Global Rating Criteria for Corporate CDOs' (April 30, 2008);

--'Global Surveillance Criteria for Corporate CDOs' (Dec. 7, 2009);

--'Criteria for Structured Finance Recovery Ratings' (Aug. 17, 2009).

Fitch will continue to monitor and review this transaction for future rating adjustments. Additional transaction information and historical data are also available at 'www.fitchratings.com'.

Additional information is available at 'www.fitchratings.com'.

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE.