Japanese Rater Preps CDO Model

Japanese rating agency Rating & Investment Information is planning to launch a new ratings model for synthetic CDOs. The move is in response to the strengthening local economy which has prompted a dramatic decline in bankruptcy levels.

"We'll looking to lower the subordination required for BBB and BB tranches," said Ichinori Kitahara, chief analyst in the structured finance rating department in Tokyo. Such tranches are a sweet spot for many domestic single-tranche deals, given the persistent tightness of spreads in Japan, which has brought many investors down the capital structure to pick up yield. Kitahara continued the new CDO model should be in place before the end of the year.

International rating agencies have also been retooling their CDO models (DW, 11/18) and changing the subordination requirements within the capital structures.