A glut of collateralized debt obligations has been downgraded by Moody's Investors Service this week after the rating agency stepped up its analysis of underlying credit quality across synthetic structures. The move is part of an effort to provide more accurate surveillance of deals, said Neelam Desai, v.p and senior analyst in the structured finance group at Moody's in London.
At least five synthetic transactions were downgraded or put on negative watch, some with vintages going back more than five years. Those affected include BNP Paribas' Bifrost and Faraya deals, Calyon's Mauritius and the Lehman Brothers and The Royal Bank of Scotland transaction Corton. Desai said the downgrades come on the back of defaults last year by Dana Corp. and Delphi Corp., and could also have been affected by credit deterioration across a number of highly referenced European and U.S. corporates. These include Hertz Corp., Toys R Us Inc., Eastman Kodak Co., Boots Group and J Sainsbury.
Most transactions have only been downgraded one notch, but because some of the deals were printed before the development of managed portfolios, credits cannot be managed out and they could face further downgrades. On the flipside, Desai noted, Moody's increased analysis may also lead to upgrades.
