Fitch Ratings Affirms 2 Classes of Avalon Capital Ltd

Business Wire, June 15, 2005

NEW YORK -- Fitch Ratings affirms two classes of notes issued by Avalon Capital Ltd (Avalon). These affirmations are the result of Fitch's review process and are effective immediately:

-- $405,348,091 class A at 'AAA';

-- $100,000,000 class B at 'BBB '.

Avalon is a collateralized debt obligation (CDO) managed by INVESCO Senior Secured Management (INVESCO) which closed Sept. 30, 1999. Avalon is currently composed of approximately 50% high yield loans, 20% high yield corporate bonds, and 30% of the portfolio value held in cash. 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 conducted cash flow modeling to measure the breakeven default rates for the rated liabilities. As a result of this analysis, Fitch has determined that the current ratings assigned to the classes A and B notes still reflect the current risk to noteholders.

Since the last rating action, the collateral has exhibited stable performance. The weighted average rating remains in the 'B/B ' range, while the number of securities rated below 'CCC ' has decreased to 2.3% as of the most recent trustee report dated April 29, 2005, from 8.4% as of the trustee report dated March 18, 2003. Over the same time period, the book value ratio increased to 104.8% from 102.9%, but is still out of compliance with its performance trigger of 108.5%. The average margin of the portfolio is currently 2.44%, and is also below its trigger of 2.75%.

The most significant factor currently affecting Avalon is that the deal is currently holding approximately $150 million of principal cash. This balance includes $46 million in the priority note reserve account, which traps excess spread in the event of a failure of the book value ratio test and can be used to cover an interest shortfall to the notes or will be released through the principal waterfall following the reinvestment period ending in September 2006. The remaining $104 million is held as principal proceeds from normal amortization of the collateral and can be reinvested in additional securities or used to redeem the notes sequentially after 90 days. The current spread environment coupled with maturity limits of available collateral has made it difficult for INVESCO to identify appropriate collateral for reinvestment in Avalon. This led to the redemption of approximately $60 million of the class A notes on the March 2005 payment date, and a similar distribution is likely to occur on the June 2005 payment date. INVESCO indicated that this trend will most likely continue through the end of the reinvestment period, leading to further redemptions of the notes.

The ratings of the classes 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.

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, also available 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.