Structured investment vehicles are focusing on restructuring AAA tranches' rather than selling as many investors feared in the immediate aftermath of Delphi Corp.'s filing. SIVs appear to be concentrating on switching credits and playing around with subordination levels to maintain ratings.
"Delphi was downgraded close to junk a long time before default," one trader said, noting the risk was already reflected. "The fact that the recovery rate was so high means it's quite possible some [tranches] were downgraded when Delphi was downgraded, not when it defaulted." This appears to be good news for the implied ratings on some rated tranches, but the net impact will take time to emerge.
