Fitch Revises Rating Watch on KKR Atlantic & Pacific to Negative

Business Wire, August 27, 2007

NEW YORK -- Fitch has revised the Rating Watch on the 'B' rated secured liquidity note (SLN) programs of KKR Atlantic Funding Trust (KKR Atantic) & KKR Pacific Funding Trust's (KKR Pacific) to Negative from Evolving.

Fitch originally downgraded KKR Atlantic and KKR Pacific to 'B' from 'F1 ' and subsequently placed both programs on Rating Watch Evolving on Aug. 15 following the breach of their overcollateralization (OC) tests. On Aug. 20, KKR Financial Advisors III, LLC (the Administrator) entered into a six-business day standstill agreement with investors which waived the OC tests, suspended the start of the liquidation period for the underlying collateral and extended outstanding SLNs. The original terms of KKR Atlantic and KKR Pacific allowed for a one time extension of 30 business days in the event proceeds are unavailable to pay maturing SLN.

Fitch believes that the most likely resolution of the standstill agreement will ultimately be a restructuring that will result in an additional extension in the maturity of liabilities in order to avoid a liquidation of the collateral under current market conditions. Such an extension would likely result in a high or full recovery for SLN investors given the credit quality of the underlying 'AAA' residential mortgage-backed securities (RMBS) collateral. However, it is possible that Fitch could view any such restructuring to effectively constitute a distressed debt exchange (see Fitch's Distressed Debt Exchange Criteria, dated April 7, 2006 and available on the Fitch Ratings web site at www.fitchratings.com). Any such determination would depend on the specific terms of the restructuring which Fitch will review when available.

If the SLNs are not restructured and the collateral is liquidated within the applicable 30-day extension period, then recovery prospects are more uncertain given the current unprecedented lack of liquidity in the mortgage-backed securities market. In Fitch's view, though, 100% recovery of principal and accrued interest may be difficult to achieve under current market conditions and within the allotted liquidation period.

Fitch will monitor the situation and will update ratings as more information becomes available and there is more clarity as to any restructuring agreement that is executed at the expiration of the standstill agreement.

Fitch defines short term 'B' ratings as 'Speculative', meaning there is minimal capacity for timely payment of financial commitments, plus vulnerability to near term adverse changes in financial and economic conditions.

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.