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.