CDOs/CLOs

There are those who predict that the next sky to fall with be the one above CMBS. The question for our markets is: Will it also land on leveraged finance?

Fitch Ratings has placed 58 classes from 13 commercial real estate CDOs containing a concentration of 2005 vintage CMBS urities on Rating Watch Negative.

Moody's Investors Service said today that it the ratings currently assigned to notes issued by Cherry Creek CDO II, will not, at this time, be reduced or withdrawn just because of the appointment of Princeton Advisory Group as the replacement collateral manager.

Moody's Investors Service has completed reviewing its ratings on U.S. CLOs, downgrading almost 65% of the CLOs reviewed.

Ever since the credit drought set in, loan market participants have been wondering when a new CLO would fall from the sky. There have been a number of predictions regarding CLO activity over the past year or so, but only a few have actually materialized. However, now that conditions have improved, some market participants think a CLO storm cloud is just over the horizon, and they expect to see new CLOs in another six months or so.

Transparency continues to be one of the underlying factors for market recovery, said speakers on a regulatory panel at Information Management Network’s 15th Annual ABS East conference held in Miami.

For the past few months, the CLO market has been quietly improving, with prices and performance tests looking up. However, the serenity ended late last week, when Texas Pacific Group said it would try to by assets in several collateralized vehicles for pennies on the dollar.

The well-documented struggles of the U.S. economy continue to pose increased difficulties for borrowers underlying U.S. middle market CLOs. Whereas early middle market CLOs benefited from solid performance of underlying middle market loans, the economic downturn has affected the viability of middle market companies resulting in a significant increase in defaults, which has contributed to negative rating pressures on middle market CLOs.

As the credit rating agencies (CRAs) begin to rebuild their brand, market experts are questioning whether the changes these firms are implementing are tackling the key problems that have caused rating inaccuracies.

The Securities and Exchange Commission’s (SEC) proposed rules for rating agencies received a mix review from market participants this week.