Fitch Rates HALCYON 2005-2, Ltd.

NEW YORK -- Fitch Ratings assigns the following ratings to HALCYON 2005-2, Ltd.:

-- EUR38,400,000 class A notes, due Dec. 25, 2056, 'AAA';

-- EUR25,800,000 class B notes, due Dec. 25, 2056, 'AA';

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

This is a synthetic CDO that will issue US$15.75 million and EUR64.200 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 static portfolio of 30 'AAA' rated CMBS assets. HRE is buying $96 million of protection on realized losses in the portfolio, with the U.S. dollar losses converted into Euros at a fixed exchange rate of US$1.25 to EUR1, thereby eliminating currency risk.

The proceeds from the sale of the notes will be invested in U.S. dollar- and Euro-denominated, short-term eligible securities, as applicable, rated at least 'F1' by Fitch. The interest of the securities will pay the LIBOR or EURIBOR portion of interest on the notes, as applicable. HRE has also entered into a credit support annex whereby if downgraded below 'F1/A', HRE will be required to post additional collateral to mitigate market value risk of liquidation due to an early redemption of the notes in an event of default by the swap counterparty. The investments will be marked to market on a weekly basis, and HRE will have to post additional collateral if the market value is below the Fitch required overcollateralization level for the specific collateral asset type.

HRE will make monthly premium payments to the issuer and in return, the issuer will cover US$96 million of realized losses in the reference portfolio after the first loss amount, US$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.

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.

Fitch will monitor the performance of this transaction. Deal information and historical data on HALCYON 2005-2, Ltd is available on the Fitch Ratings web site at www.fitchratings.com.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.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.