Moody's Investors Service extended to Dec. 1 its comment period for proposed changes to its U.S. cash-flow collateralized loan obligation rating methodology. The initial deadline was Oct. 20 (CIN, 9/1). Bill May, managing director, said the move was made because market participants requested more time to respond.
The changes incorporate Moody's new loss-given default assessments and probability-of-default ratings that began rolling out by industry in September (9/28). The ratings agency does not expect the proposed changes to result in materially different ratings to existing CLOs or new portfolios, though the expected losses of some lower-rated tranches may increase and the expected losses of higher-rated tranches may decrease (9/1).
During the rollout, Moody's applied LGD methodology to more than 1,000 U.S. and Canadian-based companies, for 3,000 rated debt instruments across 40 sectors. On average, ratings rose .54 rating notches; 45% of instruments were upgraded, 8% downgraded and 47% saw no change, according to a release. Upgrades were more common on secured debt, with 67% of first liens being upgraded, while only 23% of senior unsecured debt upgraded. Russ Solomon, senior v.p., said, "I think the response has been [what] we expected; the level of disruption was minimal."