Fitch Takes Various Action on E*Trade ABS CDO I, Ltd.

--$13,600,000 class A-2 notes downgraded to 'BBB' from 'AAA'; Outlook Stable;

--$25,000,000 class B notes downgraded to 'CCC/RR4' from 'B/DR1';

--$10,648,007 class C-1 notes affirmed at 'C/RR6';

--$3,884,653 class C-2 notes affirmed at 'C/RR6';

--$5,181,264 composite securities affirmed at 'C/RR6'.

The class A-2 notes were assigned a Stable Outlook, reflecting Fitch's expectation that the ratings will remain stable over the next one to two years.

These rating actions are due to Fitch's recently adjusted default and recovery rate assumptions for analyzing structured finance collateralized debt obligations (SF CDOs), in addition to negative credit migration in the underlying portfolio since the last review. Approximately 55% of the portfolio is rated below investment grade, of which 32.3% is rated 'CCC' and lower.

The class A-2 notes are now the most senior class of notes after the class A-1 notes paid in full in July 2006. Since that time, the class A-2 notes have paid down 72.8%. The class A-2 notes will receive all remaining principal proceeds, after any class B interest not paid using interest proceeds is paid, and will continue to delever in increments of $1 million until paid in full. The reason for the downgrade is primarily due to credit deterioration which is partly responsible for causing interest payments to class B to be made in part using principal proceeds which reduces credit enhancement to the class A-2 notes.

Par coverage of the portfolio continues to erode as is evidenced by the declining overcollateralization (OC) ratios. The class A/B OC test is currently failing with a ratio of 76.7% and the class C OC test is failing with a ratio of 55.8% versus respective triggers of 105.5% and 102%. As the remaining collateral continues to deteriorate, the likelihood of a loss of principal to the class B notes is increased. The class B notes receive interest distributions prior to the coverage test diversion in the priority of payments, so Fitch expects this class to continue to receive interest distributions as well as some principal proceeds.

The class C-1, C-2 (class C) notes and the composite securities will not be paid current interest until the class A/B OC test is passing which is not expected to occur. The class C notes have received payment in kind (PIK) interest payments, whereby the principal balance of the notes is written up by the amount of interest owed, regularly since the July 2007 distribution date. Fitch does not expect class C to receive any cash interest payments or any principal recovery.

Because the composite notes are partially comprised of class C-1 notes and preference shares, this class will also not receive any further cash interest or principal going forward.

E*Trade I is a static cash flow collateralized debt obligation (CDO) which closed Sept. 26, 2002 with a portfolio initially selected by E*TRADE Global Asset Management, Inc., and is now monitored by Vertical Capital, LLC. E*TRADE I's collateral is composed of a diversified portfolio of asset-backed securities (ABS), residential mortgage-backed securities (RMBS), commercial mortgage-backed securities (CMBS), and CDOs.

All of the above referenced notes were assigned a Stable Outlook reflecting Fitch's expectation that the ratings will remain stable over the next one to two years.

These rating actions resolve the 'Under Analysis' status issued on Oct. 14, 2008 following Fitch's announcement of its proposed criteria revision for analyzing SF CDOs. The revised criteria report, 'Global Rating Criteria for Structured Finance CDOs', was published in its final form on Dec. 16, 2008 along with an updated version of the Fitch Portfolio Credit Model that includes additional functionality for analyzing SF CDOs. As part of this review, Fitch makes standard adjustments for any names on Rating Watch Negative, downgrading such ratings for default analysis purposes by three notches, respectively.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 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.

SOURCE: Fitch Ratings

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