...Plans To Release CDO Squared Criteria

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...Plans To Release CDO Squared Criteria

Fitch Ratings plans to release its model for rating collateralized debt obligations of CDOs and publish a criteria report before the summer.

Fitch Ratings plans to release its model for rating collateralized debt obligations of CDOs and publish a criteria report before the summer. Richard Gambel, head of synthetic CDOs in London, said, "Releasing the model will improve the transparency of our analysis."

The aim is to encourage investors to use the model to understand the assumptions that underpin Fitch's ratings. It has already published a model and its criteria for rating CDOs referenced to asset-backed securities and corporate debt. Gambel said the main difference with this model is that it has a look-through function that analyzes the correlation between the underlying CDOs.

Gambel predicted that investors would use the model to examine the impact of ratings migration on their portfolios of CDOs and structurers will use it to estimate how much credit enhancement is needed in different deals. He stressed, however, that certain aspects of rating a deal, such as the analysis of the valuation mechanisms, cannot be incorporated into a model.

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