In a rarity for the CDO market, several classes of a synthetic investment-grade CDO were placed on review for upgrade by Moody's Investors Service.

Most CDO upgrades have been associated with cash deals delivering as the senior classes pay down. Synthetic deals don't benefit from this amortization, as all classes have the same tenure.

The 2001 vintage Condor Synthetic CLO is actively managed by BNP Paribas. In its review, Moody's notes that the portfolio hasn't experienced any deterioration, partially because BNP was able to trade out of problem credits. Sources at BNP could not be reached as of press time.

As it happens, managed synthetic deals have significantly outperformed static pools, in terms of ratings volatility. According to researchers at Banc of America Securities, there have been 130 tranches of static investment-grade synthetic deals downgraded this year alone by Moody's, 51 by Standard & Poor's and 54 by Fitch Ratings. By contrast, in managed synthetics, Moody's has downgraded just three tranches this year, and S&P, two tranches.

Of course, there are fewer outstanding managed synthetics, and deals are newer, as the trend didn't really pick up until 2001. Furthermore, static synthetics are often risk transfer motivated, versus managed deals, which are often structured for the arbitrage.

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