Rating agencies twist the screw on CDOs.
Standard & Poor’s has lowered its recovery assumptions for CDOs backed by subprime collateral. The expected recovery for a senior triple-A tranche is now 60%. For single-A tranches and below, the recovery rate is zero. Meanwhile, Fitch released its revised corporate CDO methodology. The original proposals were expected to result in downgrades of two to 10 notches for synthetic CDOs. Read EuroWeek this week for more details.
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