Credit deterioration for U.S. CDOs was almost wholly contained to U.S. dollar-denominated resecuritizations in 2007, according to a recent study by Moody’s Investors Service. Moody's downgraded a total of 1,331 tranches of U.S. dollar-denominated resecuritizations in 2007, which accounted for 92% of the 1,448 downgrade actions for all CDOs during the year.

Not surprising, downgrades were primarily concentrated in the 2006 and 2007 vintages, making up 87% of the 1,448 total downgrades.

And the outlook for rating volatility in 2008 is not much brighter, Moody’s said. The rating agency currently has almost 2,000 tranches of U.S. dollar-denominated resecuritization CDOs under review for a downgrade.

When examining the other CDO sectors, downgrade rates for 2007 were fairly comparable to 2006. There were exceptions for market value CDOs, where the downgrade rate increased from 0% in 2006 to 7.5% in 2007, and the investment-grade arbitrage cash flow CBO sector, where the downgrade rate dropped from 10% in 2006 to 0% in 2007.

 


 

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