Fitch Downgrades 5 Classes of Porter Square CDO III, Ltd./Inc.; Resolves Rating Watch

NEW YORK--(Business Wire)--
Fitch downgrades and removes from Rating Watch Negative five
classes of notes issued by Porter Square CDO III, Ltd./Inc. (Porter
Square III). The following rating actions are effective immediately:

--$166,048,922 class A-1 notes to 'B' from 'A';

--$56,000,000 class A-2 notes to 'CCC' from 'BBB';

--$48,000,000 class B notes to 'CC' from 'BB';

--$14,385,534 class C notes to 'C' from 'B';

--$22,631,472 class D notes to 'C' from 'CCC'.

Porter Square III is a cash flow structured finance (SF)
collateralized debt obligation (CDO) that closed on Oct. 25, 2005 and
is managed by TCW Asset Management Company. Presently 71.5% of the
portfolio is comprised of 2005 and 2006 vintage U.S. subprime
residential mortgage-backed securities (RMBS), and 4.1% consists of
2005, 2006 and 2007 vintage U.S. SF CDOs.

Fitch's rating actions reflect the significant collateral
deterioration within the portfolio, specifically subprime RMBS and SF
CDOs with underlying exposure to subprime RMBS. Since Fitch's last
rating action on Nov. 21, 2007, approximately 69.8% of the portfolio
has been downgraded, with 10.5% of the portfolio currently on Rating
Watch Negative. 76.8% of the portfolio is now rated below investment
grade, including 46.2% of the portfolio rated 'CCC+' or below. The
negative credit migration experienced since Fitch's last rating action
has resulted in the Weighted Average Rating Factor deteriorating to
27.3 ('B+/B') from 8.6 ('BBB-/BB+'), breaching its covenant of 6.4
('BBB/BBB-'), as of latest trustee report dated June 27, 2008.

The collateral deterioration has caused each of the
overcollateralization (OC) tests to fall below 100% and fail their
respective triggers. As of the latest trustee report the class A/B OC
ratio was 84.2%, the class C OC ratio was 80.0%, and the class D OC
ratio was 74.3%. As a result of the coverage test failures, the
transaction is currently diverting interest proceeds from the class C
and class D notes, instead using these proceeds to redeem class A-1
principal. Payment of interest to the class C and class D notes has
been made in kind by writing up the principal balance of each class by
the amount of interest owed.

The ratings on the classes A-1, A-2 and B notes address the timely
receipt of scheduled interest payments and the ultimate receipt of
principal as per the transaction's governing documents. The ratings on
the classes C and D notes address the ultimate receipt of interest
payments and ultimate receipt of principal as per the transaction's
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
Brian Vorderbrueggen, +1-212-908-9102 (New York)
Alina Pak, +1-312-368-3184 (Chicago)
Media Relations:
Brian Bertsch, +1-212-908-0549 (New York)

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