Standard & Poor's unveiled a new methodology to assess the risk of loss to investors in synthetic CDOs last week. The announcement came at the agency's CDO conference, which drew more than 400 attendees.

The so-called "drill down" methodology involves synthetics that reference CDO squared transactions as well as those that reference ABS. According to the agency, the new technology is designed to capture the underlying risks specific to these types of deals. For example, CDO squared transactions can overlap between the corporate or structured reference obligations backing underlying CDO obligations.

In this instance, a single corporate obligation would be referenced by more than one of the underlying CDOs, meaning a credit event would impact more than one CDO simultaneously.

"The CDO squared methodology addresses these risks by drilling down to the credits underlying the CDO reference obligations and modeling the capital structure of the underlying CDO obligations," said Kai Gilkes, a director in S&P's CDO group.

The new methodology will be available in the next version of its proprietary CDO Evaluator, although a beta version is currently available upon request.

Fitch targets SF CDO assets

Tinkering away at new product offerings, Fitch Ratings announced it had recently launched CDO Custom Watch, a surveillance product for CDO issuers and investors.

Currently in its initial stage, the product is being offered for CDOs of structured finance assets. According to the agency, it provides asset-specific data on the underlying securities in CDO transactions. Included in the new product is access to monthly reports covering underlying assets across all sectors within a CDO, and a monthly phone call with Fitch analysts.

Moody's bares its fruit

Moody's Investors Service announced it was making cash flow CDO pricing information available to all qualified intuitional buyers (QIBs) through its new Enhanced Monitoring Service. Previously, only parties associated with a specific CDO deal were given this level of monitoring ability.

"The market is moving in this direction - toward detailed information," said Gus Harris, managing director in the CDO group at Moody's. Harris noted milestones set forth this year, such as CDO modeling information from underwriters now being posted on analytic services, and the Bond Market Association's move to post deal documents online. All efforts are aimed at increasing CDO transparency, said Harris.

"Our product, we think, will be a significant step in the right direction," he said, adding that some of what Moody's will provide is not found in trustee reports or other information services.

Described as a new stand-alone product offered within a suite of new CDO-related products rolled out by the rating agency this year, the Enhanced Monitoring Service (EMS) provides market pricing information for more than 300 CDOs.

The EMS assigns a unique identifier to each loan and bond within the CDO. Rather than searching for prices bond-by-bond, or loan-by-loan, EMS provides an automatic update of the whole CDO. Given the unique identifiers assigned, should a loan get repackaged into another CDO, subscribers would still be able to track that loan. Also compiled in the EMS is detailed analysis of Caa' securities, as well as ratings analysis and watch list information.

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