2008-07-25 23:49:05 -

- Fitch Ratings has downgraded and removed from Rating Watch Negative seven classes of notes issued by Tallships Funding Ltd. The following rating actions are effective immediately:

--$683,139,946 Advance Swap to 'CCC' from 'BBB';

--$241,000,000 Revolver to 'CCC' from 'BBB';

--$357,716,917 class A-1 notes to 'CC' from 'B+;

--$64,587,777 class A-2 notes to 'CC' from 'B-;

--$50,973,806 class B notes to 'C' from 'CCC';

--$39,432,476 class C notes to 'C' from 'CC';

--$31,009,538 class D notes to 'C' from 'CC'.

Fitch's rating actions reflect the significant collateral deterioration within the portfolio, specifically subprime RMBS. Since the last review conducted in November 2007, approximately 84.2% of the portfolio has been downgraded. The

portion of the portfolio rated below investment grade is now 75.3% and 17.0% of the portfolio is currently on Rating Watch Negative.

The collateral deterioration has caused each of the class A, B, C and D overcollateralization (OC) tests to fall below 100% and fail their respective triggers. The failures of these tests are diverting interest proceeds that would otherwise be payable to the class B, C, and D notes, to the outstanding revolving credit agreement borrowings. Consistent with the current ratings, Fitch expects the class B, C, and D notes to receive only capitalized interest payments in the future with no ultimate principal recovery.

The classes are removed from Rating Watch as Fitch believes further negative migration in the portfolio will have a lesser impact on these classes. Additionally, Fitch is reviewing its SF CDO approach and will comment separately on any changes and potential rating impact at a later date.

Tallships Funding is an arbitrage hybrid synthetic and cash collateralized debt obligation (CDO) which closed Dec. 14, 2006, and is managed by Bear Stearns Asset Management. Tallships Funding has an unfunded super senior liquidity facility consisting of an advance swap and a revolving credit agreement. There are also five classes of funded notes and the proceeds are secured by cash securities and a CDS Collateral Asset Account. In the case of credit event and floating amount event, losses are covered first by the CDS Collateral Asset Account, then the revolving credit agreement, and finally the advance swap . The portfolio is composed of subprime RMBS (70.7%), SF CDOs (22.3%), Alt-A RMBS (0.9%), Prime RMBS (1.4%), and Non-SF CDOs (4.7%). Subprime RMBS of the pre-2005, 2005, 2006, and 2007 vintages account for approximately 4.7%, 31.1%, 34.7%, and 0.2% of the portfolio, respectively. SF CDOs of the pre-2005, 2005, 2006, and 2007 vintages account for approximately 2.8%, 7.5%, 11.5% and 0.5%, respectively.

The rating of the super senior liquidity facility addresses the likelihood that investors will receive full and timely payments of interest and commitment fees on the drawn and unfunded amounts, respectively, as well as the stated balance of any drawn amounts by the stated maturity date in accordance with the governing documents. The ratings of the A-1 and A-2 notes address the likelihood that investors will receive full and timely payments of interest, as well as the stated balance of principal, by the stated maturity date pursuant to the governing documents. The ratings of the class B, C and D notes address the likelihood that investors will receive ultimate interest payments, as well as the stated balance of principal, by the stated maturity date in accordance with the governing documents.

Fitch will continue to monitor and review this transaction for future rating adjustments. Additional transaction information and historical data are available on the Fitch Ratings web site at www.fitchratings.com.

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, New York
Kevin Kendra, 212-908-0760
Brian Vorderbrueggen, 212-908-9102
Alina Pak, CFA, 312-368-3184, Chicago
or
Media Relations:
Sandro Scenga, 212-908-0278