CDOs/CLOs

Large-scale downgrades in CLO ratings, resulting from changes in rating methodology by Standard & Poor’s, will not likely result in a wide-spread sell-off of CLOs, according to a report published Wednesday by Wells Fargo Securities.

While some market participants are predicting CLOs will cool down following this summer’s rally, many believe pools of mezzanine debt within CLOs will remain red hot.

Standard & Poor's published revised methodologies and assumptions it uses to rate global CDOs backed by corporate debt.

The CLO rally is not just explained by increased risk appetite but also by what has become a less threatening outlook for the sector than originally anticipated, Citigroup Global Markets analysts said in a report this week.

H. David Sherman, a Northeastern University accounting professor who wrote a book on fair-value accounting published earlier this year, is already at work on an expanded edition. He has much to expand on, given all the pronouncements, proposals and debates on the fair-value issue that have cropped up in recent months.

Barclays has repackaged part of a $1 billion CLO portfolio that was downgraded two months ago into new triple-A-rated securities. The CLO is managed by Highland Capital Management.

Standard & Poor's took credit rating actions on 453 European synthetic CDO tranches.

CLO managers are starting to see the positive side affects of the recent rally in the leveraged loan market, as various CLO fundamentals improve. A somewhat surprising phenomenon, considering the market continues to face rising defaults and a still sluggish economy.

MBIA Capital Management Corp looks set to replace Vertical Capital, LLC as asset manager for Vertical CRE CDO 2006-1 Ltd.

KBC Bank reported a surprise profit that was attributed to boosted CDO value from narrowing credit spreads, published reports said.