Fitch has placed 34 of the 38 notes issued by Tropic CDO I, II, III and IV, and Soloso CDO 2005-1 and 2007-1 on rating watch negative. The move follows notification of an offer by Trust Preferred Solutions to purchase Trups in each of the CDOs totalling US$355.8m for a price of US$17.8m in aggregate, or 5% of the par amount (see last week's issue).

The rating agency says it will resolve the RWN status of the notes pending the outcome of the TPS offer. Should the offer be accepted in full, it is likely that the ratings for a number of tranches in the CDOs will be downgraded to distressed levels of triple-C or lower.

If the TPS offer is accepted, the OC test for each transaction will fall, indicating that the senior classes of notes will be undercollateralised. In addition, a significant level of interest proceeds will be lost from these securities, with the possibility that interest proceeds would become insufficient to pay interest on some of the senior notes.