Fitch Downgrades 1 and Affirms 2 Classes of SFA ABS CDO III Ltd./Inc.

Fitch Ratings has downgraded one and affirmed two classes of notes issued by SFA ABS CDO III Ltd./Inc. (SFA III) as follows:

--$16,216,828 class A notes affirmed at 'CCsf';

--$50,117,618 class B notes downgraded to 'Dsf' from 'Csf';

--$16,315,009 class C notes affirmed at 'Csf'.

KEY RATING DRIVERS

The downgrade of the non-deferrable class B notes follows the interest payment default caused by SFA III's acceleration in May 2014.

The class A notes have benefited from the acceleration of the capital structure and have continued to amortize since Fitch's April 2014 review. Although the credit enhancement (CE) available to the class has increased, the notes were still unable to withstand losses projected at the 'CCCsf' rating stress under Fitch's Structured Finance Portfolio Credit Model (SF PCM) analysis.

The CE level of the class C notes was exceeded by expected losses (EL) from the distressed collateral ('CCsf' and below) without factoring potential losses from the performing portion of the portfolio.

RATING SENSITIVITIES

The notes of SFA III have limited sensitivity to further negative migration given their highly distressed rating levels. However, there is potential for the class A notes to be downgraded to 'Dsf' should they experience any interest payment shortfalls.

This review was conducted under the framework described in the report 'Global Rating Criteria for Structured Finance CDOs' using the Structured Finance Portfolio Credit Model (SF PCM) for projecting future default levels for the underlying portfolio. The cash flow model framework was not used to analyze the transaction given the highly distressed rating level of the notes.

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

Applicable Criteria and Related Research:

--'Global Structured Finance Rating Criteria' (May 20, 2014);

--'Global Rating Criteria for Structured Finance CDOs' (July 16, 2014).

Applicable Criteria and Related Research:

Global Structured Finance Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=748821

Global Rating Criteria for Structured Finance CDOs

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=751136

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=843923

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