Interest Rate Roundup

Tuesday, February 05, 2008

The CDO ratings knife may be coming out again soon

From Bloomberg this morning...

"Collateralized debt obligations may be downgraded as many as five levels as mortgage-related losses force Fitch Ratings to review its criteria.

"The biggest cuts will be to AAA rated CDOs that are based on credit-default swaps and aren't actively managed, according to ratings guidelines proposed by Fitch today. CDOs that package high-yield assets may be cut as many as three levels for the portions first in line for losses.

"Ratings firms are responding to criticism that they failed to react quickly enough as rising defaults on subprime mortgages in the U.S. caused a plunge in the value of CDOs, securities that package other debt. Fitch cut ratings on $67 billion of mortgage- linked CDOs in November, slashing some AAA rated debt to speculative grade, or junk."

For details on Fitch's latest action, you can go here. You can also read about many of the other recent ratings actions in MBS and structured finance in this post.


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