Of the 1,363 ratings downgrades since the ABS market's inception in 1985, 37% occurred in the first half of 2002, according to a report released this week by Moody's Investors Service. Of the record 502 downgrades seen from January through the end of June - 400, or 80% - were in the CDO sector, and 102 were for standard ABS product. By contrast, there were just eight ratings upgrades in the first six months of 2002, Moody's adds.

The more disturbing factor, however, is that 490 of the downgrades, or 99%, were due not to the performance of the issuer or a credit enhancement glitch, but to deterioration of collateral performance. In fact, 100% of the upgrades were due either to strong collateral performance or a buildup of credit enhancement.

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