S&P Does Another Round of CDO Downgrades

Standard & Poor's lowered its ratings on 67 tranches from 10 U.S. cash flow and hybrid CDO deals. The downgraded tranches total $7.647 billion. Nine of the affected deals are mezzanine structured finance (SF) CDOs of ABS, which are CDOs of ABS collateralized in large part by RMBS mezzanine tranches as well as other SF securities. One of the deals affected is a high-grade SF CDO of ABS. The transactions that experienced the negative rating actions were among the CDOs that were most affected by recent rating actions on U.S. RMBS. Thus, the rating actions on these deals might not necessarily be indicative of the outcomes analysts expect for all of the remaining CDOs of ABS with ratings currently on CreditWatch negative. S&P said that the CDO downgrades reflect a number of factors such as credit deterioration and recent negative rating actions on subprime RMBS securities. It also reflects the changes S&P has made to the recovery rate and correlation assumptions it uses to assess U.S. RMBS held within CDO collateral pools. To date, including the CDO tranches listed below and including actions on both publicly and confidentially rated tranches, analysts have lowered their ratings on 1,509 tranches from 430 U.S. cashflow, hybrid, and synthetic CDO deals as a result of stress in the U.S. residential mortgage market and credit deterioration of U.S. RMBS. Additionally, 2,441 ratings from 608 deals are now on CreditWatch negative for the same reasons. In all, the affected CDO tranches represent an issuance amount of $343.893 billion, S&P said in a release.