XS Cargo Income Fund Announces Plans to Amend Credit Facilities and Reissues Amended March 31, 2007 Interim Consolidated Financial Statements

EDMONTON, ALBERTA--(CCNMatthews - May 17, 2007) - XS Cargo Income Fund's (the "Fund") (TSX:XSC.UN) existing credit facilities include a term loan with a limit of $25 million and an operating loan to a limit of $12.5 million with a Canadian Chartered bank (the "Credit Facilities"). The Fund currently has $21.3 million outstanding on the term loan and $5.4 million outstanding on the operating loan. The Fund's credit agreement was amended in February 2007 at which time the Fund's distribution rate was $1.2375 annually per Fund Unit, Exchangeable LP Unit and Subordinated LP Unit or $14.8 million annually in total. The Fund subsequently announced a reduction in its distribution rate to $0.5625 per Fund Unit and Exchangeable LP Unit and suspended distributions on Subordinated LP Units resulting in an annualized distribution amount of $5.4 million in total. The credit agreement and financial covenants were not adjusted to reflect the new distribution rates. Consequently, the Fund is not in compliance with the fixed charge coverage ratio covenant, which is applied on a historical basis. The Fund is working closely with its lender to amend the covenants in the Credit Facilities to recognize the current distribution rate and expects to have an amended agreement in place within 60 days.

Specifically, the credit agreement contains a financial covenant that the Fund's ratio of earnings before interest, taxes, depreciation and amortization ("EBITDA" (1)) to fixed charges (the sum of interest; unfunded capital expenditures; and distributions on Fund Units, Exchangeable LP Units and Subordinated LP Units) ("fixed charge coverage ratio") must exceed 0.85 to 1.00. The fixed charge coverage ratio is calculated on a historical basis, with the result that the Fund cannot immediately take into account the distribution reductions when calculating the coverage ratio. Calculated using the distribution rate currently in place, the fixed charge coverage ratio would have been 1.60 to 1.00.

As a result of the above, the Fund is amending and restating its March 31, 2007 interim financial statements to reclassify $15,000,000 of the Term Loan as a current liability on the balance sheet and provide additional note disclosure. Under the terms of the Credit Facilities, the Term Loan is excluded from current liabilities for purposes of calculating the current ratio, so the restatement has no impact on other covenants. The restatement has no impact on the statements of earnings and comprehensive income; (deficit) retained earnings or cash flows. The Fund is also amending and re-filing its Management's Discussion and Analysis of the financial condition and results of operations for the quarter ended March 31, 2007 to include the information provided in this press release.

Business of the Fund

The Fund commenced business operations on May 17, 2005, when it completed an initial public offering (the "IPO") of 6,106,000 trust units at a price of $10 per unit, for aggregate gross proceeds of $61,060,000. Concurrent with the closing of the IPO, the Fund acquired a 51% indirect interest in XS Cargo LP and XS Cargo LP acquired the net assets (the "Acquired Business") of Famous Brands (Edmonton) Inc. (the "Vendor"). XS Cargo LP operates 38 closeout retail stores in Alberta, British Columbia, Manitoba, Saskatchewan, Ontario, Newfoundland, Nova Scotia and New Brunswick.

(1) Non-GAAP Measure

References to "EBITDA" are to earnings before interest, income taxes, depreciation and amortization. EBITDA is not an earnings measure recognized by GAAP and it does not have a standardized meaning prescribed by GAAP. Investors are cautioned that EBITDA should not replace net income or loss (as determined in accordance with GAAP) as an indicator of the Fund's performance, of its cash flows from operating, investing and financing activities or as a measure of its liquidity and cash flows. The Fund's methods of calculating EBITDA may differ from the methods used by other issuers and may not be comparable to similar measures presented by other issuers.

FORWARD LOOKING STATEMENTS

This press release contains forward-looking statements. All statements other than statements of historical fact contained in this press release are forward-looking statements. You can identify many of these statements by looking for words such as "believe", "expects", "will", "intends", "projects", "anticipates", "estimates", "continues" or similar words or the negative thereof. These forward-looking statements include statements with respect to the amount and timing of the payment of distributions of the Fund. There can be no assurance that the plans, intentions or expectations upon which these forward-looking statements are based will occur. Forward-looking statements are subject to risks, uncertainties and assumptions, including, but not limited to, those discussed elsewhere in the press release. There can be no assurance that such expectations will prove to be correct.

Some of the factors that could affect future results and could cause results to differ materially from those expressed in the forward-looking statements contained herein include, but are not limited to, those discussed under "Risk Factors" in the Fund's MD&A.

The forward-looking statements contained herein are expressly qualified in their entirety by this cautionary statement. The forward-looking statements included in this press release are made as of the date of this press release and, except as required by law, the Fund assumes no obligation to update or revise them to reflect new events or circumstances.