2008-05-14 23:50:59 -

- Fitch Ratings has placed the following tranche of Pilatus Limited 2005-Step Up Notes I on Rating Watch Negative:

--EUR20,000,000 secured floating-rate credit-linked notes due 2012,'AAA'.

The Rating Watch Negative placement reflects Fitch's view on the credit risk of the rated notes following the release of its new Corporate CDO rating Criteria.

Key drivers of this transaction's

credit risk include:

--Portfolio credit risk deteriorating to a current average portfolio quality of 'BBB-/BB+' from 'BBB'/'BBB-' in June 2007, with 25.3% of the portfolio rated below investment grade.

--Portfolio migration risk with 17.2% of the portfolio on RWN and 13.1% of the portfolio with a Negative Outlook.

--Industry concentration of 48.7% in the three largest, made up of 38.4% in banking & finance, 9.1% in telecommunications and 8.1% in food beverage and tobacco.

Given Fitch's view of concentration and the current credit quality of the portfolio, the credit enhancement level of 5.4% is not sufficient to justify the current rating of these notes.

Resolution of the Negative Watch status will incorporate any changes made to the portfolio or the transaction along with additional portfolio migration and any increases to the credit enhancement level related to the subordination step-up feature of the transaction.

Pilatus Limited 2005-Step Up Notes I is a static synthetic collateralized debt obligation (CDO) providing investors with exposure to the credit risk of a static diversified portfolio of credit default swaps comprised of primarily investment grade corporate obligations. Pilatus gains access to the credit risk of the portfolio via a credit default swap with Swiss Re Financial Products Corporation (guaranteed by Swiss Reinsurance Company rated 'AA-' by Fitch). This trade has a scheduled maturity date of Sept. 20, 2012.

Fitch released updated criteria on April 30, 2008 for Corporate CDOs and, at that time, noted it would be reviewing its ratings accordingly to establish consistency for existing and new transactions. As part of this review, Fitch makes standard adjustments for any names on Rating Watch Negative or Outlook Negative, reducing such ratings for default analysis purposes by two and one notch, respectively. Fitch has noted its review will be focused first on ratings most exposed to risks it has highlighted in its updated criteria. Committees are also reviewing transactions that are least impacted by the new criteria and/or portfolio migration. Resolution of these Rating Watches will depend on the plans managers/arrangers may choose to execute and communicate to address these concerns.

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.

Fitch Ratings
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Kevin Kendra, +1-212-908-0760, New York
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