The bankruptcy of auto parts supplier Delphi Corp. is seen having a far greater impact on the European synthetic CDO markets, than in the U.S., according to Standard & Poor's, which reported that 842 of its publicly and privately rated CDOs reference Delphi. Of that total, 638 are European transactions -- a smaller number were originated in North America and Japan.


S&P said it expected 'roughly one third of the CDOs it rates that reference Delphi to experience a negative rating action on one or more rated tranches.' Similarly, Fitch Ratings reported that it expected to downgrade 35% of the synthetic CDO transactions with Delphi exposure, with the indication being a downgrade of between one and two notches. Fitch said that Delphi, the third most referenced sub-investment grade name within its static synthetic CDOs index, is referenced within 35% of transactions in its index.


According to analysts at Dresdner Kleinwort Wasserstein the impact on the cashflow CDO market is not expected to be as severe because Delphi only appears in 67 deals, and these transactions are not as highly levered.


S&P and Moody's Investors Service yesterday announced additional rating actions on General Motors Corp. S&P cut the company's debt by one notch to 'BB-' from 'BB' and kept it on negative watch. Moody's placed its 'Ba2' rating of GM on watch negative along with GMAC. "This is likely to have a knock on effect on the CDO market as GM is another name frequently found in CDO portfolios, and we would expect deals with exposure to both Delphi and GM to be at greater risk of a downgrade," said analysts at DrKW.

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