Moody's Investors Service has taken issue with recent guidelines put forth by the International Swaps and Derivatives Association, which broaden the definition of credit events. The rating agency believes these will expose investors to unintended risks.
Moody's has rated a considerable number of deals - mostly synthetic collateralized debt obligations and credit-linked notes - featuring a credit default swap. In these types of swaps, losses experienced by investors are based on credit events that happen in a reference portfolio. The risk taken by investors, therefore, largely depends on how a credit event is defined. Thus the broader the definition of a credit event, the larger the risk that investors take on.