Moody's Investors Service has been hard at work keeping tabs on the ups and downs in structured finance - namely in the form of upgrades and downgrades.

In a report due out this week, analysts at the agency found the number of downgrades of asset-backed securities more than doubled in the fourth quarter of 2003, compared with the third quarter of the year. While upgrade activity increased during that period, it wasn't enough to offset the disturbing news. There were nearly 10 times more downgrades than upgrades during the fourth quarter.

Not surprisingly, the CDO sector had one of the highest shares of downgrades, just behind manufactured-housing securitizations.

There were 507 rating changes from Oct. 1, 2003 through Dec. 31, 2003, affecting $29.2 billion in securities issued, according to the rating agency. In all, 459 downgrades affecting $26.5 billion in securities were recorded during that period, while there were 48 upgrades comprising $2.7 billion in securities.

While the downgrade figure is still very high, it remains below the all-time high of 792 downgrades in the second quarter of 2003. However, in a twist of the data, if one excludes tobacco-related transactions, then the 459 downgrades resulting in 4Q2003 actually top the previous high of 440 in 4Q 2002.

"Both of these quarters share something in common - the presence of a large number of downgrades related to the manufactured-housing sector of Green Tree/ Conseco," the report states.

As 2003 came to a close, 215 classes of senior, mezzanine and subordinate notes from 56 manufactured-housing securitizations of Green Tree/Conseco were downgraded. In fact, 12% of all asset-backed downgrades and 68% of all manufactured-housing downgrades stem directly from securities issued by Green Tree/Conseco - a fact not likely to be touted.

Fortunately, all the hoopla from this sector meant CDOs finished with the second-most downgrades, accounting for 117, or 25% of all negative action seen in fourth quarter.

Not surprisingly, DVI Financial Services showed up in the fourth quarter's actions, as 55 classes of notes issued in nine medical-equipment lease securitizations were downgraded, comprising a 12% share of downgrade activity, analysts said.

To round out the report's findings, 31 home-equity downgrades and 25 franchise-loan downgrades occurred in 4Q 2003.

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