In response to additional investor feedback, Moody's Investors Service  is modifying the two supplemental measures to its structured finance ratings that it introduced earlier this year.
 
The rating is slightly modifying its terminology for one of the measures, the Assumption Volatility Score while also replacing the second measure, Loss Sensitivity Analysis, with a new measure, Parameter Sensitivity Analyses, to offer investors with more information on the relationship between an assigned rating and the model inputs that contributed to that rating.
 
The firm said the development of its Parameter Sensitivity Analyses is to respond to investor requests for added information regarding the potential sensitivity of the rating agency's ratings to the assumptions made during the rating process.  Parameter Sensitivities offer a quantitative calculation of how the initial rating of a security may vary if key assumptions changed.

"Parameter Sensitivities are not intended to measure how the rating of the security might migrate over time," said Structured Finance Chief Credit Officer Nicolas Weill. "Rather, they are designed to show how the initial rating might change if key assumptions were altered."
 
Also, the rating agency will now refer to its Assumption Volatility Score as the Assumption V Score or just V score. The measure is a relative assessment of the quality of available credit information and the potential variability around the various inputs in determining the rating.
 
"V Scores and Parameter Sensitivities seek to address two distinct questions asked by investors: first, what is the degree of uncertainty around the assumptions that underlie our structured ratings?," said Weill."And, second, how sensitive are Moody"s ratings to changes in our key assumptions?"  

The agency announced the enhancements, which are aimed at enhancing the transparency and information content of its structured finance ratings, in a May 2008 Special Comment called Introducing Assumption Volatility Scores and Loss Sensitivities to Structured Finance Securities.  In July, Moody"s began assigning the new assessments to all new U.S. Vehicle public term transactions.
 
Moody's expects to publish sector reports on the new assessments for most of the primary global ABS and RMBS asset classes by early 2009, with the CDO, CLO and derivative sectors following shortly.
 
A new report Updated Report on V Scores and Parameter Sensitivities for Structured Finance Securities explained the modified system in detail and gives several typical deals as examples.

Subscribe Now

Access to a full range of industry content, analysis and expert commentary.

30-Day Free Trial

No credit card required. Access coverage of the securitization marketplace, including breaking news updated throughout the day.