Fitch Affirms 3 & Upgrades 1 Class of Arroyo I CDO, Ltd.

NEW YORK -- Fitch Ratings upgrades one class and affirms three classes of notes issued by Arroyo I CDO, Ltd (Arroyo). The following rating actions are effective immediately:

--$144,822,336 class A notes affirmed at 'AAA';

--$38,800,000 class B notes upgraded to 'AAA' from 'AA';

--$10,000,000 class C-1 notes affirmed at 'BBB';

--$16,800,000 class C-2 notes affirmed at 'BBB'.

Arroyo is a collateralized debt obligation (CDO) managed by Western Asset Management Company (Western) which closed Aug. 16, 2001. Fitch rates Western 'CAM2' as a structured finance CDO asset manager. Arroyo is primarily composed of 33.2% RMBS, 31.1% Commercial ABS, 10% CMBS, 9.3% Consumer ABS, 9.9% Corporate debt, 3.7% CDO, and 3% REIT securities. Included in this review, Fitch discussed the current state of the portfolio with the asset manager and conducted cash flow modeling for various default timing interest rate scenarios, and prepayment assumptions to measure the breakeven default rates going forward relative to the minimum cumulative default rates required for the rated liabilities.

The upgrade of class B is a result of the improving credit enhancement (CE) levels and overcollateralization (OC) ratios, both due to the continuing deleveraging of the deal.

Class A received $83.9 million paydown since the last rating action. The increase in the class C CE level is offset by the presence and level of distressed assets, with assets rated below 'BBB-' at 24% as of Oct. 2, 2006, the most recent trustee report available.

The ratings of the class A and B 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 rating of the class C-1 and C-2 notes addresses 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 Collateralized Debt Obligations,' dated Sept. 13, 2004, also available at www.fitchratings.com.

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.