Fitch Ratings Affirms 4 Tranches of Arroyo I CDO, Ltd.

NEW YORK -- Fitch Ratings affirms four classes of notes issued by Arroyo I CDO, Ltd., (Arroyo). These affirmations are the result of Fitch's review process. The following rating actions are effective immediately:

--$314,925,561 class A notes 'AAA';

--$38,800,000 class B notes 'AA';

--$10,000,000 class C-1 notes 'BBB';

--$16,000,000 class C-2 notes 'BBB'.

Arroyo is a collateralized debt obligation (CDO) managed by Western Asset Management Company (Western) which closed August 16, 2001. Fitch rates Western 'CAM2' on its ABS asset manager rating. Arroyo is primarily composed of 30% residential mortgage-backed securities (RMBS), 29% commercial asset-backed securities (ABS), 18% commercial mortgage-backed securities (CMBS) and 10% consumer ABS. Included in this review, Fitch discussed the current state of the portfolio with the asset manager and their portfolio management strategy going forward. In addition, Fitch Ratings 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. As a result of this analysis, Fitch has determined that the original ratings assigned to the class A, B, C-1 and C-2 notes still reflect the current risk to noteholders.

Since the last rating action, the collateral has deteriorated. The weighted average rating factor has increased from 17.65 ('BBB/BBB-') to 20.05 ('BBB-'). As of the most recent trustee report available, Arroyo's defaulted assets represented 2.5% of the $398 million of total collateral and eligible investments. Assets rated 'BBB-'or lower represents approximately 17.6% of the portfolio balance.

As a result of the end of the reinvestment period on Aug. 16, 2004 the calculation of the class A overcollateralization (OC), class B OC and class C OC ratios now include a haircuts for below investment grade assets that were previously applied only to the Additional Coverage Test. The haircut takes the excess below investment grade collateral greater than the 10% limit and reduces it for OC purposes by 50% of its par value. The result of this change to the OC calculation is a decrease in the class A OC, class B OC, and class C OC ratios from 125.9%, 111.68%, and 104.11% as of the Aug. 16, 2004 payment date to 120.83%, 107.58% and 100.21%, respectively, as of the Sept. 2, 2004 report. In addition the below investment grade haircut no longer applies to the Additional Coverage test which increased form 100.17% to 104.15%.

The ratings of the class A 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-1 and C-2 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 Fitch Ratings web site at 'www.fitchratings.com'. For more information on the Fitch VECTOR Model, see 'Global Rating Criteria for Collateralised Debt Obligations', dated Sept. 13, 2004, and also available at 'www.fitchratings.com'.