A record 102 classes of 55 ABS transactions were downgraded in the first quarter of 2002, according to a new report from Standard & Poor's. The asset classes hit hardest by the economic downturn were CDOs, manufactured housing and franchise loans.

The three collateral types accounted for roughly 75% of total downgrades seen in the first three months of 2002, up from 48% in all of last year, S&P said. These downgrades come as supply in sub classes has steadily increased in new issues.

"Eighty-eight percent of the initial ratings made in 1985 were triple-A, and none were below single-A," explains Patrick Coyne, a director in Standard & Poor's Structured Finance Surveillance group. "Comparatively, only 43% of the initial ratings made in 2001 were triple-A, while 20% were at triple-B, and another 7% were at double-B."

Additionally, as increased supply in subordinate classes is expected to continue, so should rating volatility among subordinated tranches. Investment-grade ABS, by contrast, is expected to see the majority of upgrades, S&P notes.

This information is contained in a detailed report titled: Structured Finance Ratings Roundup Quarterly: First-Quarter Performance Trends. The report, available on the company's Web site, www.standardandpoors.com, covers significant rating activity across all segments of the structured finance market, as well as servicer evaluations, real estate companies, and international arenas.

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