Fitch Affirms & Upgrades Various Classes of Black Diamond CLO 1998-1 Ltd.

NEW YORK -- Fitch Ratings affirms one class and upgrades five classes of notes issued by Black Diamond CLO 1998-1 Ltd. (Black Diamond CLO). The following rating actions are effective immediately:

-- $157,559,560 class A-2 notes affirmed at 'AAA';

-- $10,000,000 class A-3 notes upgraded to 'AA+' from 'AA-';

-- $15,000,000 class A-4 notes upgraded to 'A+' from 'A-';

-- $7,000,000 class B-1L notes upgraded to 'BBB+' from 'BBB-';

-- $18,000,000 class B-1 notes upgraded to 'BBB+' from 'BBB- ' ;

-- $11,100,000 class B-2 notes upgraded to 'BB+' from 'BB-'.

Black Diamond CLO is a collateralized loan obligation (CLO) managed by Black Diamond Capital Management, L.L.C. that closed Jan. 20, 1999. Black Diamond CLO is composed of primarily high yield loans (78%) and high yield bonds (22%). Included in this review, Fitch discussed the current state of the portfolio with the asset manager and their portfolio management strategy. In addition, Fitch conducted cash flow modeling utilizing various default timing and interest rate scenarios to measure the breakeven default rates relative to the minimum cumulative default rates required for the rated liabilities.

As of the Jan. 3, 2005 trustee report, the class A-1 notes have been paid in full, and the class A-2 notes have been paid down by approximately $132.4 million, representing 45.7% of the original class A-2 note balance. Since the last rating action on June 12, 2003, the class A overcollateralization (OC) ratio has improved from 119.62% to 135.61%, versus a trigger of 110%, and the class B OC has improved from 107.77% to 112.84%, versus a trigger of 104%, as of the Jan. 3, 2005 trustee report. The weighted average spread has declined slightly from 3.77% to 3.51%, and the weighted average rating has remained stable at 'B/B-'. As of the most recent trustee report, Black Diamond CLO defaulted assets represented approximately 0.79% of the $203.0 million of total collateral. Assets rated 'CCC+' or lower represented approximately 15.3%, excluding defaults.

The rating of the class A-2, A-3, and A-4 notes address the likelihood that investors will receive full and timely payments of interest, as per the governing documents, as well as the stated balance of principal by the legal final maturity date. The ratings of the class B-1L, B-1, and B-2 notes address the likelihood that investors will receive ultimate and compensating interest payments, as per the governing documents, as well as the stated balance of principal by the legal final maturity date.

Fitch will continue to monitor and review this transaction for future rating adjustments. Additional deal information and historical data are available on the Fitch Ratings web site at 'www.fitchratings.com'. (For more information on the Fitch VECTOR Model, see 'Global Rating Criteria for Collateralised Debt Obligations,' dated Sept. 13, 2004, available on the Fitch Ratings web site at 'www.fitchratings.com'.) As a result of this analysis, Fitch has determined that the current ratings assigned to the class A-3, A-4, B-1L, B-1, and B-2 notes no longer reflect the current risk to noteholders and have subsequently improved.