Fitch Ratings is in the process of changing its collateralized debt obligation asset manager rating approach, otherwise known as CAM, to incorporate synthetic CDO asset managers, the rating agency announced last week. The move comes as a result of increasing U.S. issuance of managed synthetic CDOs, as well as the occurrence of larger synthetic buckets within cashflow CDOs.

"Asset manager risk is generally higher in synthetic CDOs because these structures tend to offer more trading flexibility than cash transactions," Fitch wrote.

Additional elements that Fitch will now use to judge synthetic CDO asset managers will now include the ability to handle counterparty risk and ability to manage and trade credit derivatives, as well as a manager's ability to make "clear credit decisions." Fitch already uses a total of seven rating categories in assigning asset manager ratings and the additional elements will be incorporated into those. The rating agency is currently working on a report that will tackle the implications of such a broad array of available credit choices for synthetic CDO managers versus their cash counterparts.

(c) 2005 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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