At least three structured finance CDOs are seeing credit migration to a degree that is making several investors nervous, since these deals are highly leveraged, according to buyside and rating agency sources.

Diversified Asset Securitization Holdings I (DASH I), known as the first visible SF CDO issued in 1999, has seen $6.5 million in defaulted securities while the transaction has only $10 million in equity support. Prudential Securities was the underwriter and Asset Allocation & Management is the manager.

Another deal that has seen deterioration, though to lesser degree, is a 2001 SF CDO that is breaching its Moody's speculative-grade bucket at a current level of 9.08% versus a test of 7.5%. The transaction is backed by approximately 40% REITs, 25% RMBS and HEQ, 20% other and 15% CMBS. Alsom, a 2000 SF CDO, is breaching its Moody's rating factor test at a current level of 357 while the test is 375. This breach will limit the manager's ability to buy bonds of lesser quality than those sold.

"Overall, the incremental risk to ABS CDOs lies in their exposure to subprime consumer credit," wrote Lehman Brothers CDO strategist Sunita Ganapati. "Transactions that already have exposure to weak BBB CDOs, aircraft ABS subordinates, and to 12b-1 fee ABS that deteoriated in value post-9/11, are most vulnerable to further consumer credit weakness."

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