PARADISE ISLAND, Bahamas - At last week's ABS East 2002 conference, panelists were questioning the methods rating agencies used to rate CDOs backed by structured finance collateral, specifically the requirements for collateral diversification.

Anthony Thompson, managing director at Deutsche Bank Securities, pointed out that the recent downgrades in structured finance CDOs were caused by corporate credit problems and not the underlying ABS. Therefore, some panelists concluded that diversification into corporates by managers without core expertise in the sector may not be helpful in the long run.

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