Fitch Downgrades 1 & Affirms 3 Classes of Clearwater Funding CBO 98-A LLC.

NEW YORK -- Fitch downgrades one class and affirms three classes of notes issued by Clearwater Funding CBO 98-A LLC, (Clearwater 98-A). The following rating actions are effective immediately:

--$89,056,037 class A-1, Series A notes affirmed at 'AAA';

--$28,361,795 class A-1, Series B notes affirmed at 'AAA';

--$10,936 class A-2 accreted notes affirmed at 'AAA';

--$31,500,000 class B notes downgraded to 'BB-' from 'BBB-'.

Clearwater 98-A is a collateralized debt obligation (CDO) that closed July 24, 1998 and is managed by Tiber Asset Management, LLC (Tiber). Clearwater 98-A is composed of fixed-rate emerging market corporate and sovereign bonds as well as fixed-rate non-emerging market high-grade and high-yield corporate bonds. The reinvestment period ended in August 2002. As part of this review, Fitch discussed the current state of the portfolio with the asset manager and its portfolio management strategy going forward. In addition, 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.

The affirmations of the class A-1 and A-2 notes are the result of deleveraging in the structure. To date, the class A-1 notes have received approximately 43% of their original balance from normal amortization and coverage test failures. The amount of class A-2 accreting notes outstanding has decreased by over 99% due to coverage test failures as well. The class A and A/B overcollateralization (OC) tests increased due to the reduction in the liabilities and are now both in compliance.

The downgrade of the class B notes is the result of decreased credit enhancement and reduced excess spread in the transaction. Credit enhancement has decreased despite the OC tests improving because the OC tests include interest proceeds in their calculation. Comparing just collateral and principal cash versus outstanding liabilities shows that there is less credit enhancement than at last review. Since the last rating action on February 16, 2005, one asset with a par value of $4 million defaulted. The weighted average coupon has decreased to 8.06% from 8.12% and continues to fail its covenant of 8.15%.

The rating of the class A-1 notes addresses the likelihood that investors will receive full and timely payments of interest, as well as the stated balance of principal by the legal final maturity date. The rating of the class B notes addresses the likelihood that investors will receive ultimate and compensating interest payments, as well as the stated balance of principal by the legal final maturity date. The rating of the class A-2 accreted notes addresses the likelihood that investors will receive the accreted investment amount by the legal final maturity.

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 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.