Standard & Poor's today placed its ratings on various classes from 19 cash flow and hybrid CDO deals on CreditWatch with negative implications. The CreditWatch placements follow the rating agency's July 12 downgrades of a signficant number of classes from first-lien subprime RMBS transactions. As part of its surveillance process, S&P's is reviewing CDOs with exposure to the downgraded RMBS.

In a statement, S&P said that it has reviewed the results of preliminary cash flow analyses for these deals and compared them with the scenario default rates (SDRs) generated by its CDO Evaluator model to see if the credit enhancement for these CDO structures is enough to support the tranches at their current rating levels. This is given the impact of the RMBS rating actions on the portfolios.

According to S&P, the CreditWatch placements on these CDO ratings are a reflection of the increased probability of default within the overall portfolios and take into consideration the CDO structures and the rating cushions available to support each tranche both before and after the RMBS rating actions.

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