Fitch Downgrades $66.1MM & Affirms $384.8MM of Glacier Funding CDO III, Ltd.

NEW YORK -- Fitch affirms two and downgrades three classes of notes issued by Glacier Funding CDO III, Ltd. (Glacier III). These rating actions are the result of Fitch's review process and are effective immediately:

--$ 322,168,497 class A-1 notes affirmed at 'AAA';

--$ 62,579,492 class A-2 notes affirmed at 'AAA';

--$ 39,633,678 class B notes downgraded to 'A' from 'AA';

--$ 23,641,142 class C notes downgraded to 'BB' from 'BBB';

--$ 2,781,311 class D notes downgraded to 'B' from 'BB+' and removed from Rating Watch Negative.

Glacier III is a collateralized debt obligation (CDO) that closed July 29, 2005 and is managed by Terwin Money Management LLC. Glacier III will exit its substitution period in November 2007. Included in this review, Fitch discussed the current state of the portfolio with the asset manager. Additionally, Fitch conducted cash flow modeling utilizing various default timing and interest rate scenarios to measure the breakeven default rates going forward relative to the minimum cumulative default rates required for the rated liabilities.

Fitch's rating actions reflect the significant collateral deterioration within the portfolio, specifically subprime residential mortgage-backed securities (RMBS), since the last rating action on March 13, 2007. Further, Glacier III's portfolio contains a sizeable exposure (39%) to subprime RMBS of 2005, 2006 and 2007 vintages, which are experiencing higher levels of delinquencies and defaults. Additionally, Glacier III portfolio contains 1.4% of subprime closed-end second lien (CES) RMBS assets. As of the July 29, 2007 trustee report the Fitch Weighted Average Rating Factor (WARF) was at 4.1 ('BBB'/'BBB-') as compared to 3.7 ('BBB'/'BBB-') as of the Jan. 29, 2007 trustee report. The current WARF value satisfies its corresponding covenant of 4.8('BBB'/'BBB-'). The majority of downgrades in the underlying portfolio took place in the last three months and were the result of credit deterioration in subprime RMBS; downgrades have continued since the July 29 trustee report. Currently, 1.5% of the portfolio is on Rating Watch Negative and in Fitch's opinion 4.8% is of below investment grade quality, of which 1.6% is of 'CCC' or lower quality. The credit deterioration in the portfolio has increased the risk profiles of class B, C and D notes. This rating analysis also incorporated Fitch's revised methodology for rating structured finance CDOs. For more information, see 'Global Criteria Change for U.S. Structured Finance CDOs Reflects Heightened Subprime Risks,' dated Aug. 15, 2007 and available on the Derivative Fitch web site at www.derivativefitch.com.

The ratings of the class 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 class 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. 18, 2006 and also available at www.derivativefitch.com.

Fitch has commented on the performance of the 2006 vintage subprime CES RMBS in a press release dated May 22, 2007 entitled 'Second-Lien RMBS Exposure in CDOs Marginal But May Increase', also available on the Derivative Fitch web site.

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.