Palisades CDO Ltd. Rated 'AAA/AA/BBB' by Fitch Ratings.

NEW YORK -- Fitch has rated the following notes issued by Palisades CDO Ltd. and co-issuer Palisades CDO Corp. (collectively referred to as the co-issuers):

-- U.S. $366,000,000 class A-1A floating rate notes due July 2039 are rated 'AAA';

-- U.S. $6,000,000 class A-1B fixed rate notes due July 2039 are rated 'AAA';

-- U.S. $88,500,000 class A-2 floating rate notes due July 2039 are rated 'AAA';

-- U.S. $78,000,000 class B-1 floating rate notes due July 2039 are rated 'AA';

-- U.S. $6,000,000 class B-2 fixed rate notes due July 2039 are rated 'AA';

-- U.S. $15,200,000 class C-1 floating rate notes due July 2039 are rated 'BBB';

-- U.S. $15,700,000 class C-2 fixed rate notes due July 2039 are rated 'BBB'.

The ratings on the class A-1A, A-1B, A-2, B-1 and B-2 notes address the timely payment of interest and ultimate payment of principal as outlined in the governing documents. The ratings on the class C-1 and C-2 notes address the ultimate payment of interest and principal as outlined in the governing documents.

The ratings are based upon the capital structure of the transaction, the quality of the collateral, and the overcollateralization and interest coverage tests provided for within the indenture. A notable feature of the structure includes a turbo mechanism that uses excess interest to amortize the principal of the class C notes based on a predetermined schedule starting at the closing date.

The collateral manager, at any time, may sell defaulted, credit risk, credit improved, or equity securities, in addition to a 15% discretionary trading cap and may also reinvest the proceeds from the sale of credit risk securities after the reinvestment period. In addition, the collateral manager may reclassify underlying assets purchased by the CDO. The reclassified securities will result from the re-tranching of assets in the portfolio to achieve certain credit estimate levels.

The proceeds of the notes will be used to purchase a managed investment portfolio consisting of approximately 68% residential mortgage-backed securities (RMBS), 15% asset-backed securities (ABS), 12% commercial mortgage-backed securities (CMBS) and 5% collateralized debt obligations (CDOs). The portfolio will be approximately 99% ramped at closing. The maximum Fitch weighted average rating factor (WARF) of the collateral is 6.0 (BBB/BBB-).

Western Asset Management Company (Western Asset), a wholly owned subsidiary of Legg Mason, Inc., is a registered investment advisor headquartered in Pasadena, Calif., with offices in London and Singapore. Western Asset's investment product offerings are exclusively focused on fixed income investments with a substantial portion invested in structured finance products. Of the almost $160.5 billion in assets under management, about $60 billion is in structured finance investments. The company's first CDO was issued in August 2001. Since that time Western Asset has continued to grow its CDO assets under management, averaging one structured finance CDO issued in each succeeding year. Western Asset is rated 'CAM2' by Fitch as a manager of structured finance CDOs. Western Asset's strong CDO asset manager rating is based on the experience and retention levels among management and staff and the company's effective leveraging of institutional competencies to further strengthen its asset selection, portfolio management, and CDO administration capabilities. Western Asset scored '1', the highest score, for its credit underwriting and asset selection procedures and practices.

For more information on the structure and the collateral manager, please refer to the presale report titled 'Palisades CDO Ltd.', available on the Fitch Rating web site at 'www.fitchratings.com'. Additional information about the collateral manager is also available on the Fitch Rating web site at 'www.fitchratings.com' under insurance companies.