Yet more methodology-tweaking by Moody’s and Standard & Poor’s last month brought the prospect of downgrades to the triple-A tranches of cash CLOs ever closer to reality. Moody’s actions early in the month resulted in nearly 3,600 tranches rated double-A and below of 760 US and European CLOs now facing downgrades. S&P’s new approach envisages a 1.6 notch downgrade for senior triple-As, a 4.3 notch downgrade for junior triple-As and a 5.8 notch downgrade for triple-Bs.
"As usual, the rating agencies are light years too late on this," comments one structured credit expert. "The market has already priced this in." But with downgrades of this magnitude, and the continuing deterioration in underlying loan performance, the market is braced for further turmoil...
