Moody's Investor Service realeased data last week reviewing statistics regarding downgrades on the different asset classes of collateralized debt obligations with CLOs suffering far less downgrades than their CBO counterparts. Arbitrage cash flow CBOs and synthetic balance sheet CDOs were the hardest hit of all structures, according to the Moody's report while balance sheet CLOs were among the top performers.
Cash flow arbitrage structures using loan collateral suffered 6.02% in downgrades in total while cash flow arbitrage structures using bond collateral primarily had 44.58% of deals downgraded. "Arbitrage cash flow CDOs not only sustained the highest level of downgrades, but also endured the highest downgrade severity," said Gus Harris, managing director at Moody's. Ratings downgrades have increased across all asset classes though, with 14 downgrades in 2001 on arbitrage CLOs representing the highest amount of downgrades on the asset class since 1996.
On the CBO front there were a total of 97 downgrades in 2001 out of 1,057 deals rated by the agency. Looking forward, Harris expects continued stress in structured vehicles whose assets are closely tied to credit performance in the coporate market until the macroeconomic environment begins to turnaround.