Supersenior tranches of RMBS CDO issued since Sept 30, 2005...

Supersenior tranches of RMBS CDO issued since Sept 30, 2005 projected to get only 60% recoveries...

S&P Lowers CDO Assumptions, Signaling More Downgrades (Update1)
2008-04-28 11:17 (New York)


(Adds S&P comments in the third paragraph.)

By Jody Shenn
April 28 (Bloomberg) -- Standard & Poor's lowered its assumptions for how much money would be recovered from defaults of mortgage-linked collateralized debt obligations, a move that may add to the record number of downgrades on the securities.
The affected CDOs are at least 40 percent invested in U.S.
residential mortgage bonds created since Sept. 30, 2005, or pieces of CDOs with such holdings, New York-based S&P said in a statement today. The most-senior bonds from the CDOs originally rated AAA should recover 60 percent of principal owed, while securities initially rated A or lower will get nothing, S&P said.
The changes ``may have a negative impact on the ratings assigned to the affected CDOs because a reduction in expected recoveries typically necessitates more'' investor protection, S&P analysts led by Patrice Jordan said in the statement.
More downgrades may force owners to sell the securities into a weak market or hold more capital against them. Mortgage-linked CDOs, mainly classes originally rated AAA by S&P or Aaa by Moody's Investors Service, have represented the largest source of the $309 billion of asset writedowns and credit losses reported by the world's largest banks and securities firms since 2006.
S&P so far has cut $351.6 billion of CDOs ``as a result of stress in the U.S. residential mortgage market and credit deterioration'' among home-loan bonds, the ratings company said April 25. Ratings on $16.3 billion more were under review by S&P with a ``a high likelihood of downgrade.''
Investors should recover 35 percent of principal after defaults on securities from the CDOs junior to their so-called super-senior classes but also originally rated AAA, S&P said.
Originally rated AA classes should recover 5 percent, it said.

*T
For related news:
News on CDOs of asset-backed securities: {STNI ABS CDOS } Subprime news: {NI SUPRIME BN } *T

--Editor: Romaine Bostick, Alan Goldstein.

To contact the reporter on this story:
Jody Shenn in New York at +1-212-617-2380 or [email protected].

To contact the editor responsible for this story:
Emma Moody at +1-212-617-3504 or
[email protected]