Fitch Affirms Palisades CDO, Ltd.

CHICAGO -- Fitch affirms all classes of notes issued by Palisades CDO, Ltd. (Palisades). These rating actions are the result of Fitch's review process and are effective immediately:

-- $366,000,000 class A-1A notes affirm at 'AAA';

-- $6,000,000 class A-1B notes affirm at 'AAA';

-- $88,500,000 class A-2 notes affirm at 'AAA';

-- $78,000,000 class B-1 notes affirm at 'AA';

-- $6,000,000 class B-2 notes affirm at 'AA';

-- $12,844,000 class C-1 notes affirm at 'BBB';

-- $13,266,500 class C-2 notes affirm at 'BBB'.

Palisades is a collateralized debt obligation (CDO) which closed on July 15, 2004 that references a portfolio of residential mortgage-backed securities (RMBS), commercial mortgage-backed securities (CMBS), collateralized debt obligations (CDO), and consumer and commercial asset-backed securities (ABS). The portfolio is managed by Western Asset Management Company (WAMCO), who maintains a CDO asset manager rating of 'CAM2' for structured finance CDOs. Included in this review, Fitch discussed the current state of the portfolio with the asset manager. Fitch also 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.

Since Fitch's last review on April 12, 2006, approximately 8.8% of the $581 million portfolio has been downgraded and 2.1% remains on Rating Watch Negative. Despite roughly 25.2% exposure to 2005 through 2007 subprime collateral, the credit quality of the collateral remains stable. As of the most recent trustee report dated July 31, 2007, the Fitch Weighted Average Rating Factor of 4.0 is passing the covenant of 6.0. Additionally, all overcollateralization (OC) and interest coverage (IC) ratios are passing the covenants. The class A/B and C OC ratios are 110.1% and 105%, respectively, exceeding the 106.2% and 101.9% triggers. The class A/B and C IC ratios are 129.6% and 121.4%, respectively, exceeding the 111% and 100% triggers.

The ratings on the class A-1A, A-1B, A-2, B-1 and B-2 notes address the timely payment of interest and ultimate payment of principal as outlined in the governing documents. The ratings on the class C-1 and C-2 notes address the ultimate payment of interest and principal as outlined in the governing documents.

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 and 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.