The criteria for CDO league tables will change this month as Thomson Financial unveils six new tables in its second quarter wrap-up, anticipated this week or next. Not since their inception have CDO league tables garnered such attention and the speculation is that a shakeup in the underwriter rankings will follow.
The changing criteria, seen as a much-needed one by CDO sources, came via the impetus of The Bond Market Association's CDO Committee, which undertook a review of the criteria and worked with Thomson Financial to create criteria more reflective of today's complex CDO market.
"The Bond Market Association's CDO Committee has been reviewing criteria for CDO league tables," said Nadine Cancell, vice president and assistant general counsel for The Bond Market Association. "We hope to set some standards in this regard that will make the tables more useful for market participants."
TF's Global Research Manager Matthew Toole confirmed that 2Q04 CDO league tables would feature six different data sets, replacing the one Global CDO League Table that had served the market since 2001. That singular league table was essentially a bucket of all CDOs and had no real specificity, or any specific breakdown as far as CDO types went, Toole explained.
In addition to 2Q04 results, Toole's team will reclassify 2Q04 using the new criteria and will also reclassify full-year 2003 results. However, Toole stressed reclassifying 2003 is an exercise performed in hindsight and would be employed only to demonstrate how the year broke down if the criteria has been in place. He stated it would not technically affect the underwriter rankings for the year.
Current global criteria stipulate a minimum year-and-a-half funding period, something that made some new CDO ramp-up and reinvestment approaches difficult to ascertain and to appreciate, sources said. It also failed to fully represent the different collateral types, structures and market innovations that have evolved over the years.
The new CDO types included in the league tables include: arbitrage CDOs; funded arbitrage CDOs - which captured funded assets and funded liabilities; a second funded arbitrage CDOs set capturing deals with rated and offered CDO tranches; balance sheet CLOs; synthetic CDOs (based on full notional value); and a second synthetic CDOs table based on the amount of rated notes.
Reaction from CDO sources was encouraging, although two sources suggest the tables with duplicate names (funded arbitrage and synthetic) should be changed to make their function more clear.
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