CDOs

Moody's Investors Service has completed reviewing its ratings on U.S. CLOs, downgrading almost 65% of the CLOs reviewed.

Ever since the credit drought set in, loan market participants have been wondering when a new CLO would fall from the sky. There have been a number of predictions regarding CLO activity over the past year or so, but only a few have actually materialized. However, now that conditions have improved, some market participants think a CLO storm cloud is just over the horizon, and they expect to see new CLOs in another six months or so.

Transparency continues to be one of the underlying factors for market recovery, said speakers on a regulatory panel at Information Management Network’s 15th Annual ABS East conference held in Miami.

For the past few months, the CLO market has been quietly improving, with prices and performance tests looking up. However, the serenity ended late last week, when Texas Pacific Group said it would try to by assets in several collateralized vehicles for pennies on the dollar.

The well-documented struggles of the U.S. economy continue to pose increased difficulties for borrowers underlying U.S. middle market CLOs. Whereas early middle market CLOs benefited from solid performance of underlying middle market loans, the economic downturn has affected the viability of middle market companies resulting in a significant increase in defaults, which has contributed to negative rating pressures on middle market CLOs.

As the credit rating agencies (CRAs) begin to rebuild their brand, market experts are questioning whether the changes these firms are implementing are tackling the key problems that have caused rating inaccuracies.

The Securities and Exchange Commission’s (SEC) proposed rules for rating agencies received a mix review from market participants this week.

Large-scale downgrades in CLO ratings, resulting from changes in rating methodology by Standard & Poor’s, will not likely result in a wide-spread sell-off of CLOs, according to a report published Wednesday by Wells Fargo Securities.

While some market participants are predicting CLOs will cool down following this summer’s rally, many believe pools of mezzanine debt within CLOs will remain red hot.

Standard & Poor's published revised methodologies and assumptions it uses to rate global CDOs backed by corporate debt.

The CLO rally is not just explained by increased risk appetite but also by what has become a less threatening outlook for the sector than originally anticipated, Citigroup Global Markets analysts said in a report this week.

H. David Sherman, a Northeastern University accounting professor who wrote a book on fair-value accounting published earlier this year, is already at work on an expanded edition. He has much to expand on, given all the pronouncements, proposals and debates on the fair-value issue that have cropped up in recent months.

Barclays has repackaged part of a $1 billion CLO portfolio that was downgraded two months ago into new triple-A-rated securities. The CLO is managed by Highland Capital Management.

Standard & Poor's took credit rating actions on 453 European synthetic CDO tranches.

CLO managers are starting to see the positive side affects of the recent rally in the leveraged loan market, as various CLO fundamentals improve. A somewhat surprising phenomenon, considering the market continues to face rising defaults and a still sluggish economy.

MBIA Capital Management Corp looks set to replace Vertical Capital, LLC as asset manager for Vertical CRE CDO 2006-1 Ltd.

KBC Bank reported a surprise profit that was attributed to boosted CDO value from narrowing credit spreads, published reports said.

Deerfield Capital Corp. entered into three supplemental indentures on July 31 with the holders of the trust preferred securities issued by each of Deerfield Capital Trust I, Deerfield Capital Trust II and Deerfield Capital Trust III.

If the leverage finance market has a Mickey Rourke - the actor who wrestled his way back on top - it would probably be the CLO manager. CLOs have experienced a comeback recently, mainly because secondary prices have improved since the first quarter. But market participants believe that CLOs are still on the ropes, and will be for the rest of the year.

Maxim Group expanded its fixed-income team with three additions, the New York-based investment bank announced today. The three new executives will all serve as traders.