Friday, September 18, 2009

Mr. Speaker I rated that microphone

SEPTEMBER 17, 2009

Standard & Poor's Ratings Services recalibrated its ratings criteria for collateralized debt obligations, resulting in the ratings firm's putting about 4,790 CDO tranches totaling $578 billion on watch for downgrade.

(That ought to leave a mark wherever zombie accounting does not apply. -AM)

The changes will make the CDO ratings more comparable to ratings in other sectors, S&P said.

The ratings agency will introduce tests - both quantitative and qualitative - to supplement its default-simulation model.

(The default simulation model was initially tweaked in order to stop the darn thing from going upside-down whenever they ran the Monte. Guess they are pulling out version 1.0 as their 'supplement' .-AM)

S&P will also adjust its models to target AAA default rates it believes are commensurate with conditions of extreme macroeconomic stress, such as the Great Depression, as well as BBB default rates consistent with the highest actual corporate defaults over the past 28 years.

(Recession's over! Yeah beer ... wait, that's not beer -AM)

S&P said downgrades are likely to be multiple notches after reviewing the tranches over the coming months, with Chief Credit Officer Thomas Gillis estimating that outstanding synthetic CDOs will likely experience an average downgrade of four notches.


Super senior AAA tranches will probably be affected less, with expected downgrades of two to three notches, while tranches rated AAA will likely be affected more, with an estimated downgrade of four to five notches.

(Shoot, I guess there ain't no such thing as AAAA. -AM)

Of the tranches on watch for downgrade, 3,076 tranches totaling $319.6 billion are from 957 U.S. transactions. Another 1,626 tranches are from 623 European transactions and are $250.5 billion in size.

(Out goes the downgrade and in comes the dollar. Its' liquidity sponge time! Got treasuries? -AM)

"We believe that adding quantitative and qualitative elements to our analysis...will provide a more robust analysis than using only simulation models," Gillis said.

(You ain't kiddin'. Best to be forgettin' that once you were abettin' while the speech is free. -AM)

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