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S&P Requests Comments On Stressed Recovery RMBS Ratings

Standard & Poor's is requesting comments on its proposed stressed recovery ratings for all senior tranches of U.S. prime, Alt-A, and subprime RMBS that it originally rated at 'AAA' but has downgraded to 'BB+' or below.

The rating agency's proposal and the specific requests S&P is making are outlined in the article Request for Comment: Methodology For Stressed Recovery Ratings On Prime, Alt-A, And Subprime U.S. RMBS.

The rating firm is also developing a product to offer added granularity for recovery analysis. This product's details will follow in a separate request for market feedback that S&P will publishing over the coming weeks.

S&P introduced corporate recovery ratings to the market in 2003 to find out the differences among the varied debt instruments. These ratings are the firm's projections of ultimate recovery of principal and pre-petition interest on specific issues if a potential payment default happens.

The rating firm employed published criteria consistent with its existing credit ratings. The proposed stressed recovery rating would be its assessment of the total amount of principal that would probably be recovered in the event of default under a 'A' stress scenario.

The proposed recovery rating would complement a security's current credit rating indicating S&P's opinion on the projected principal recovery on a security if it defaults. This added metric would be expressed as a percentage of the security's initial par amount.

Specifically, the rating agency is seeking responses to the following questions. They want responses on whether S&P should use its 'A' stress scenario for the stressed recovery rating or should it consider another scenario? Should it express stressed recovery ratings in terms other than percentages of securities' initial par amounts? Are the intervals we are proposing to use in the stressed recovery rating scale suitable?

The rating agency is asking all market players to submit comments in writing on the proposed criteria by Sept. 4. 

E-mailed comments must be sent to CriteriaComments@standardandpoors.com.

S&P said that once the comment period is over, its will evaluate the comments and finalize the criteria for these new stressed recovery ratings.

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