At Christmas, 33 CDOs had triggered “events of default”. Mid January and that number had risen to 58. According to Standard & Poor’s that figure has now spiked to 80 – worth around $97bn.
The number of defaulting CDOs has in fact increased by $13bn in the past week alone.
But more worrying is the fact that senior creditors are now pushing for CDOs to be liquidated – indicating the beginnings, perhaps, of a much-speculated-upon fire sale of CDO assets. A total of 18 CDOs, worth an estimated $18bn, have opted for liquidation as at Thursday. One is understood to have completed the process.
Unwinding of synthetic CDOs – which reference CDS contracts – is thought to be behind some of the rapid spread-widening on credit indices on Friday.
More painful liquidations are also to be expected. Further downgrades of RMBS – particularly 2006-2007 vintages, and the downgrading of bond insurer XLCA on Thursday, which played big in the CDO world – will push a great deal more CDOs towards default.