Demands for more personal responsibility on the part of the CDO investor and the portfolio manager gave the rating agencies a break from the hot seat at the ASF's annual conference in Las Vegas last week.

While panelist Mark Gold, chief executive officer of HillMark Capital Management, argued that a triple-A rating should be a sufficient indicator of the quality of a deal, others repeated the view that high ratings are no longer enough of a guarantee of good collateral.

"The rating agencies are a black box," said Peter Gleysteen, chief executive officer of Commercial Industrial Finance Corp. He noted that for his firm's portfolio, only about 50% of the assets have ratings that agree with one another.

Furthermore, even the monolines, whose triple-A wrap has historically indicated a good investment, have proved that they cannot be a guarantee, panelists said.

While panelists threw out suggestions like better disclosure in ratings methodology, a common point of reference for deal information, standardization of underwriting and new mechanisms for disseminating accessible information to the market, investors are ultimately responsible for doing the appropriate amount of data valuation, panelists said.

"Triple-A bonds require double-B analysis," said Dan Feshbach, president and chief executive officer of LoanPerformance. He noted that the availability and sharing of information has at times "been like pulling teeth." There is also a shortage of good analysts, which is what this industry needs, Feshbach said.

Indeed, doing an appropriate amount of groundwork in analyzing loans and bonds appeared to be a common thread running through the panels last Monday. Ron D'Vari, managing director at BlackRock, addressed the fact that too much emphasis has been placed on historical performance in order to model ABS CDOs. He added that there is confusion over whether it is the structure itself or the collateral and lack of loan information from the originator that has caused CDO market distress.

As a result, investor selectivity has also become increasingly important, cautioned Richard Rizzo, director at Deutsche Bank. Investors need to be especially more selective at the bottom of the capital structure, he said.

(c) 2008 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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