Moody's Investors Service has updated its structured finance CDO methodology. These deals' ratings consider the credit assessments of non-Moody's rated assets that are inferred from the ratings given by other rating agencies.
As a result, Moody's has placed the ratings of six CDO deals on review for possible downgrade.
In its analysis of SF CDOs to date, the rating agency has in some limited circumstances inferred the credit assessment of certain underlying non-Moody's-rated collateral assets from the ratings assigned by other agencies.
But, in the future Moody's will produce credit estimates for those assets it does not rate based on its rating implementation guidance titled Updated Approach to the Usage of Credit Estimates in Rated Transactions.
In cases where the data is not enough to produce this estimate and the unrated asset is material to the rating agency's credit analysis of the SF CDO, Moody's might withdraw the rating of the SF CDO notes given the lack of information based on its rating withdrawal policy.
The rating agency has looked at the universe of 563 U.S. structured finance CDO outstanding.
As mentioned, the ratings for six CDOs will be placed under review for possible downgrade because of the methodology change.
The affacted transactions are: DG Funding Trust; House of Europe Funding IV PLC; House of Europe Funding V PLC; MKP CBO III Ltd; North Street Referenced Linked Notes, 2002-3A Limited; and NYLIM STRATFORD CDO 2001-1 LTD.
The main methodology used in these rating analysis was Moody's Approach to Rating SF CDOs published in May 2012.