Fitch Affirms Kleros Preferred Funding, Ltd.

NEW YORK -- Fitch affirms five classes of notes issued by Kleros Preferred Funding, Ltd. (Kleros I). These affirmations are the result of Fitch's review process and are effective immediately:

--$808,119,232 class A-1 notes at 'AAA';

--$65,124,903 class A-2 notes at 'AAA';

--$48,962,518 class B notes at 'AA';

--$12,359,471 class C notes at 'A-';

--$8,081,192 class D notes at 'BBB'.

Kleros I is a collateralized debt obligation (CDO) that closed June 3, 2005 and is managed by Strategos Capital Management, LLC. Kleros I has a static portfolio composed of 82% residential mortgage-backed securities and 18% CDOs.

Since the last rating action in February 2006, the collateral has continued to perform within expectations. As of the most recent trustee report dated Dec. 27, 2006, the weighted average rating factor has remained at 0.89 ('AA'). All coverage tests remain passing, with similar levels to those seen at the time of the last rating action. The portfolio does not contain any defaulted assets, and there are no assets rated below 'A-'.

The ratings of the classes A-1, A-2, 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 ratings of the classes C and D 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 Derivative Fitch web site at www.derivativefitch.com. For more information on the Fitch VECTOR Model, see 'Global Rating Criteria for Collateralised Debt Obligations,' dated Oct. 4, 2006, also available 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.