Fitch Rates HALCYON 2005-1, Ltd.

NEW YORK -- Fitch Ratings assigns the following ratings to HALCYON 2005-1, Ltd.

-- EUR51,875,000 class A notes due July 25, 2056 'AAA';

-- EUR15,000,000 class B notes due July 25, 2056 'AA';

-- US$15,750,000 class C notes due July 25, 2056 'BBB'.

This is a synthetic CDO that will issue $15.75 million and EUR66.875 million in credit-linked notes. The note proceeds will collateralize a credit default swap with Hypo Real Estate Bank International (HRE), the swap counterparty, that references a $1.5 billion portfolio of 30 'AAA' rated CMBS assets. HRE is buying protection from the issuer on $96 million of realized losses in the portfolio, the U.S. dollar losses are converted into euros at a fixed exchange rate of $1.20 to EUR1 to the extent such losses are applied to the euro-denominated class A and class B notes. The issuer will enter into an investment contract with Pallas Capital Corp. ('AAA/F1+') to mitigate the collateral market value risk associated with the U.S. denominated collateral and the proceeds of the euro notes will be invested in short-term money market investments rated 'F1' or better by Fitch. The euro collateral will be marked to market weekly, and HRE will provide additional collateral through a credit support annex to ensure the market value of the collateral meets Fitch's advance-rate requirements. The rating addresses the timely receipt of interest and ultimate receipt of principal. The ratings are based upon the credit quality of the reference portfolio, the financial strength of HRE, as the swap counterparty, the credit quality of the collateral assets, and the legal structure of the transaction.

HRE will make monthly premium payments to the issuer, and in return, the issuer will cover $96 million of realized losses in the reference portfolio after the first loss amount, $1.5 million. The loss amounts will reduce the principal amount of the classes in reverse sequential order. If the losses are written up on the reference obligation, HRE will pay write-down reimbursements to the issuer in sequential order.

The interest on the notes will be reduced if the actual interest received on the reference obligation is less than the expected interest amount in reverse sequential order. If a reference entity receives deferred interest or interest reversals, HRE will pay the issuer the amount of the interest reversals in sequential order.

Fitch will monitor the performance of this transaction. Deal information and historical data on HALCYON 2005-1, Ltd is available on the Fitch Ratings web site at www.fitchratings.com.

Fitch's rating definitions are available on the agency's public web site, www.fitchratings.com. Published ratings, criteria and methodologies, and relevant policies and procedures are also available from this site, at all times. This document will remain on the public site for seven days.