The annual study of structured finance ratings transitions by Moody's Investors Service found that upgrades have evened out with downgrades in U.S. the structured finance market.

Last year saw a spike in rating upgrades, as Moody's issued 973 upgrades in 2004 versus 1,008 downgrades last year. This compares favorable to 2003, which saw 549 upgrades and 1,265 downgrades. In short, the ratio of upgrades to downgrades in 2004 was nearly one-to-one.

In 2004, credit-card ABS experienced no downgrades, according to Moody's and 10 CCABS securities were upgraded. Auto ABS had 70 bonds upgraded, resulting in a 14% upgrade rate, with just six downgrades.

U.S. RMBS also posted stellar performance last year, with an upgrade level reaching 7.9% last year, its highest level since 1996. Downgrades dropped to less than 0.1% in 2004.

Overall, ratings stability improved as 91.2% of structured finance ratings went unchanged last year, an increase from 89.8% seen in the year prior, Moody's noted in its report.

"The majority of the global structured finance upgrades in 2004 were the result of strong collateral performance, amortization, and the increased pay-down of senior notes," said Jian Hu, director of structured finance default research at Moody's. Hu said a small proportion of rating changes were triggered by a change in a third-party rating, with the majority of downgrades caused by weaker-than-expected pool performance and higher-than-expected losses on defaulted securities in collateral pools.

The downgrade rate for U.S. CDOs fell below its historical average of 12%, said Moody's. Downgrades were concentrated in CDO squared resecuritizations, and in high-yield CBOs. However, as a result of de-levering, a few high-yield CBO tranches were actually upgraded by Moody's last year.

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