Credit events and a dry market for defaulted bonds continue to rock the ratings in CBO land.

Last week Fitch lowered its ratings on two classes of Pilgram American CBO I, and three classes of Steller Funding Corp.

Rating agency sources have indicated that the slaughter will continue.

"Obviously there's an uptick in defaults," said Brian Gordon, director at Fitch. "But what's killing these deals is that recovery values are so dismal."

Recovery values are as low as ten cents on the dollar, which causes problems when a CDO manager is forced to sell off a defaulted bond, market sources said.

"People don't want to buy pristine new junk bonds right now, much less the defaulted stuff," Gordon said.

Further, one investor who was looking to pick up some distressed bonds indicated that holders are unwilling to sell, because they don't want to realize the losses.

Fitch had placed BarCLO Finance BBB C-class and BB D-class on ratings watch negative earlier in the month.

Meanwhile, Moody's recently put several classes from three CBOs by Conseco Capital Management on review for a possible downgrade, including: the B-class and C-class from ML CBO III; the A, B and C classes of ML CBO VI; and the B and C classes of ML CBO VII. Prior to that, and within days of each other, both Moody's and Standard & Poor's had downgraded the A-2 and A-3 classes of ML CBO XIV. Moody's also dropped its rating of the class B notes to Ca from B3.

Also, Moody's dropped the ratings on four classes of Blue Stripe 1991-1, two classes of notes issued by Atlantic Global Funding.

In early January, S&P began the cycle, lowering a AAA-rated class of NorthStar CBO 1997-2 to AA, which was the first time S&P had lowered a triple-A rated class of a CBO.

Also back in January (and since then) several series of the Bistro transaction have been downgraded, for their exposure to the Californian Utilities, of all things.

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