Fitch Affirms Bluegrass ABS CDO III, Ltd.

NEW YORK -- Fitch affirms all classes of notes issued by Bluegrass ABS CDO III, Ltd., (Bluegrass III). These affirmations are the result of Fitch's review process. The following rating actions are effective immediately:

--$280,000,000 Class A-1 Notes affirm at 'AAA';

--$49,000,000 Class A-2 Notes affirm at 'AAA';

--$27,000,000 Class B Notes affirm at 'AA';

--$13,000,000 Class C Notes affirm at 'A';

--$6,875,000 Class D-1 Notes affirm at 'BBB';

--$3,437,500 Class D-2 Notes affirm at 'BBB';

--$5,765,073 Combination Securities affirm at 'BBB-'.

Bluegrass III is a collateralized debt obligation (CDO) that closed on Sept. 15, 2004 and is managed by Invesco Institutional N.A. Inc. Bluegrass II is composed of residential mortgage-backed securities (RMBS), asset-backed securities (ABS), commercial mortgage-backed securities (CMBS) and CDOs. Bluegrass III is currently in its reinvestment period and will exit it in Sept. 2007.

Since the last rating action, the collateral has continued to exhibit stable performance. The weighted average rating factor has remained stable at 4.1(BBB/BBB-) since last review. The class A/B, class C and class D overcollateralization ratios have remained stable at 112.58%, 108.61% and 105.61% respectively. The class A/B, class C, class D interest coverage ratios have declined since last review from 140.56% ,128.74% and 128.91% to 130.52%, 125.11% and 120.52% as of the most recent trustee report dated Dec 7, 2006, but are still above their trigger levels of 126% and 117% and 113% respectively. The decline can be attributed to a slightly lower weighted average spread and some of the assets in the portfolio experiencing interest shortfall. Currently there are no defaulted assets in the portfolio.

The ratings of the class A-1, A-2 and class 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 ratings of the class C, class D-1 and D-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. The rating of the combination securities addresses the likelihood that investors will receive the combination security notional balance as well as ultimate payments resulting in a 2% coupon.

Fitch will continue to monitor and review this transaction for future rating adjustments. Additional deal information and historical data are available on the Derivative Fitch web site at www.derivativefitch.com. For more information on the Fitch VECTOR Model, see 'Global Rating Criteria for Collateralized Debt Obligations,' dated Oct. 4, 2006 and also available on Fitch's web site at www.derivativefitch.com.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.derivativefitch.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. Fitch means Fitch, Inc., Fitch Ratings, Ltd. and their subsidiaries including Derivative Fitch, Inc. and Derivative Fitch Ltd. and any successor or successors thereto.