Rating withdrawals are becoming a more significant indicator of credit performance in the collateralized debt obligation world as the market moves out of its infancy and some of the first-generation deals mature. At the beginning of this year, Moody's Investors Service started to track withdrawals as it tracks upgrades and downgrades and an increasing number of withdrawals bodes well for CDO credit performance in general. "It's always been an indicator, but they have become more prevalent," said Danielle Nazarian, v.p. and senior credit officer. She added, "They are positive events," since a majority of withdrawals occur because the notes are paid down in full.
Overall, Moody's withdrew its ratings on 79 tranches, across collateral types, during the first half of the year. While this is roughly in line with roughly 130 withdrawals last year, the pace has picked up of late as emerging market deals in particular become seasoned. Of the withdrawals during the first half of the year, almost all were due to the notes maturing or the structures being liquidated to lock in gains. Nazarian noted the rate is an important indicator of credit performance. "We don't generally upgrade notes prior to redemption," she said.
Recent examples include the notes of Alcentra's Pacifica Partners I portfolio. These were withdrawn after Imperial Credit Industries, the equity investor and holder of the double-B notes, cashed in amid strong market conditions. Another example of ratings that were removed for positive reasons are those on OneWorld Global Sovereign CBO, a deal backed mainly by emerging market sovereign debt under OneWorld Investments. The ratings were removed after the notes were paid in full.