Fitch Affirms 4 Classes of Castle Hill II - INGOTS

NEW YORK--(Business Wire)--
Fitch Ratings has affirmed four classes of notes issued by Castle Hill II -
INGOTS, Ltd/Corp. (Castle Hill II), and assigned Loss Severity (LS) as
indicated. See the complete list of rating actions at the end of this release.

This review was conducted under the framework described in the report 'Global
Structured Finance Rating Criteria'. Cash flow and portfolio default modeling
were conducted in accordance with Fitch's 'Global Criteria for Cash Flow
Analysis in CDOs - Amended', 'Global Rating Criteria for Corporate CDOs',
'Global Surveillance Criteria for Corporate CDOs' and 'Criteria for Interest
Rate Stresses in Structured Finance Transactions'. Loss Severity (LS) ratings
were assigned in compliance with Fitch's 'Criteria for Structured Finance Loss
Severity Ratings'.

The affirmations are the result of the continued increase in credit enhancement
for the notes. The increase in credit support reflects the deleveraging of the
class A notes through asset amortization and the application of excess spread
via the subordinate principal replenishment amount (SPRA). The SPRA is a
structural feature designed to maintain a minimum amount of asset coverage to
the subordinate notes. After the reinvestment period, if the SPRA is not
satisfied, part or all of the excess spread that would otherwise be available to
the residual interest subordinated notes is diverted to repay the notes
sequentially, starting with the class A notes. Since Fitch's last review,
approximately $6.7 million of excess spread was diverted to the class A notes to
satisfy the SPRA. Excess interest proceeds are expected to continue to be
diverted to redeem the class A notes until the SPRA is satisfied.

The improved credit enhancement levels are offset by the portfolio credit
migration experienced since Fitch's last review in November 2008. Based on
Fitch's analysis the current average credit quality of the portfolio is 'B-'
compared to 'B/B-' at the last review. Approximately 28.7% of the performing
portfolio is now considered to be rated 'CCC+' or lower by Fitch compared to
11.9% at the last review. Exposure to defaulted securities also rose to 8.8%
from 2.5% at last review. Additionally, 2.9% and 16.8% of the portfolio is on
Rating Watch Negative or has a Negative Outlook, respectively, by at least one
rating agency, indicating the potential for further negative rating migration in
the future.

The subordinated notes receive Basic Interest, Additional Interest, Supplemental
Interest and Contingent Interest from the interest waterfall. All but Basic
Interest receipts are used to reduce the rated principal balance. Additional
Interest, Supplemental Interest and Contingent Interest payments have not been
made since the last review and are not expected to be made until the SPRA is
satisfied. Since closing, the residual interest subordinated notes have received
$31.4 million in distributions in excess of the Basic Interest amount, reducing
the rated principal balance to $18.6 million, or 37.3% of the initial rated
principal balance.

In its review, Fitch analyzed the structure's sensitivity to reduced U.S.
corporate recoveries. To accomplish this, in one scenario Fitch reduced its
average recovery rate assumptions for each asset type by 30%, where explicit
Recovery Ratings were not available. The class B-1, B-2 and subordinated notes
displayed a degree of sensitivity to lower recovery rates. This sensitivity, in
addition to the sizeable portion of underlying portfolio credits with Negative
Outlooks, prompted Fitch to maintain a Negative Outlook on the class B-1, B-2
and subordinated notes. The class A notes displayed relatively limited
sensitivity to lower recovery rates so Fitch maintains their Stable Outlook.

The ratings of the class A notes address the likelihood that investors will
receive full and timely payments of interest per the transaction's governing
documents, as well as the stated balance of principal by the legal final
maturity date. The rating of the class B-1 and B-2 notes addresses the
likelihood that investors will receive ultimate and compensating interest
payments per the transaction's governing documents, as well as the stated
balance of principal by the legal final maturity date. The rating of the
subordinated notes addresses the ultimate payment of Basic Interest while the
rated principal balance is outstanding and the ultimate repayment of principal
by the stated maturity date. For avoidance of doubt, all distributions to the
residual interest subordinated notes in excess of the Basic Interest are applied
to reduce the rated principal balance.

The class A, B-1, B-2 and subordinated notes were assigned LS ratings. The LS
ratings indicate each tranche's potential loss severity given default, as
evidenced by the ratio of tranche size to the base-case loss expectation for the
collateral, as explained in Fitch's 'Criteria for Structured Finance Loss
Severity Ratings'. The LS rating should always be considered in conjunction with
the notes' long-term credit rating.

Castle Hill II is a cash flow collateralized loan obligation (CLO) that closed
in September 2002 and is managed by Sankaty Adivsors, LLC. The five-year
reinvestment period ended on Oct. 15, 2007. The portfolio is comprised of 96.2%
senior secured loans and 3.8% senior unsecured and second lien loans. The stated
maturity of the transaction is in October 2014.

Fitch has affirmed and assigned LS ratings to the following notes as indicated:

--$221,442,925 class A first priority senior secured notes due 2014 affirmed at
'AAA/LS2', Outlook Stable;

--$22,000,000 class B-1 second priority floating-rate interest deferrable
secured notes due 2014 affirmed at 'A/LS4', Outlook Negative;

--$6,000,000 class B-2 second priority fixed-rate interest deferrable secured
notes due 2014 affirmed at 'A/LS4', Outlook Negative;

--$18,646,579 residual interest subordinated notes due 2014 affirmed at
'BB+/LS4', Outlook Negative.

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 Criteria for Cash Flow Analysis in CDOs - Amended' (Nov. 9, 2009);

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

--'Criteria for Structured Finance Loss Severity Ratings' (Feb. 17, 2009);

--'Criteria for Interest Rate Stresses in Structured Finance Transactions' (Feb.
17, 2010).

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'.

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Fitch Ratings, New York
Elizabeth Nugent, 212-908-9157
Kevin Kendra, 212-908-0760
or
Media Relations:
Sandro Scenga, 212-908-0278
Email: sandro.scenga@fitchratings.com

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