Fitch Affirms Merrill Lynch Derivative Products at 'AAA'

MLDP's 'AAA' rating is based on its conservative capitalization, collateralization, high-quality counterparties, and operating guidelines. Fitch affirmed the rating based on the operating structure of the vehicle, capital that exceeds requirements, and limited credit risk. MLDP is a stand-alone, bankruptcy-remote entity. MLDP passes all market risk to MLCS or MLIB through mirror transactions and retains the associated credit risk.

Credit exposures to MLCS and MLIB are collateralized. Capital held against credit exposures to all other counterparties is determined by a sophisticated capital model. Capital is retained in liquid and conservative investments held at a third party custodian. Current capital levels are in excess of requirements.

As a 'continuation' structure DPC, MLDP contracts with a contingent manager to step in and help manage its portfolio if certain trigger events (for example, the disintermediation from MLCS and MLIB) were to occur. Fitch believes the possibility of a trigger event occurring is currently remote. Following such a trigger event, only risk-reducing trades are allowed. MLDP's current contingent manager is WestLB (Fitch IDR 'A-', Individual 'D/E'). When initially engaged by MLDP in 1996, WestLB's IDR was 'AAA'; however, the abolition of German state guarantees effectively reduced its credit rating for liabilities entered after July 2005. This resulted in changes to WestLB's business model, and Individual and long-term ratings have subsequently deteriorated. Fitch believes that WestLB's current Individual rating suggests the firm may be challenged to perform its contingent manager duties adequately if called upon.

Fitch affirms the following ratings:

Merrill Lynch Derivative Products AG

--Long-term Issuer Default Rating (IDR) at 'AAA';

--Counterparty Rating at 'AAA'.

The Outlook is Stable.

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