Too late for us to catch on Friday. More downgrade fun from S&P:
Standard & Poor’s Ratings Services indicated it may lower its ratings on about 6.42 bln usd of US cash flow and hybrid collateralised debt obligation (CDO) of asset-backed securities.
It placed on negative watch the ratings on 149 tranches from 43 such transactions. This action follows the downgrades of 793 classes of US residential mortgage-backed securities (RMBS) backed by US closed-end second-lien mortgage collateral issued in 2004, 2005, and 2006.
Which brings S&P’s own CDO review/downgrade running total to $77bn. S&P’s action this time is a consequence of earlier second-lien MBS downgrades - that is, securities backed by mortgages taken by people who already have one.
Also on Friday, an analyst’s note sent to clients by Wachovia had revealing details about current CDOs in default. Justin Pauley said that $64bn of CDOs have triggered events of default - 54 in total. There’s a Bloomberg round-up available here.
The worrisome part of what Pauley says is that 28 of those CDOs are unlikely to repay even their most senior noteholders in full. Likely, then, that we’re talking about synthetic CDOs; where the cost of terminating the CDS contracts will cost noteholders dearly. A la Adams Square.
