Collateralized Debt Obligations (CDOs) On Downgrade Watch

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Collateralized Debt Obligations (CDOs) On Downgrade Watch

Kathy Shwiff of the WSJ reports that Standard & Poor’s Ratings Services has placed on watch for possible downgrade its ratings on 149 tranches worth a total of $6.42 billion from 43 U.S. cash flow and hybrid collateralized debt obligation of asset-backed securities transactions.

The move follows last month’s downgrade of 793 classes of U.S. residential mortgage-backed securities backed by U.S. closed-end second-lien mortgage collateral issued in 2004, 2005 and 2006.

All of the CDO tranches with ratings placed on CreditWatch with negative implications are from CDOs of asset-backed securities collateralized by structured finance securities, including U.S. RMBS backed by closed-end second-lien collateral.

CDOs, which use sliced-and-diced assets such as subprime-mortgage bonds to create customized products offering various levels of risk, have been at the heart of steep write-downs at big banks and brokerage firms.

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