More Ratings Pain Seen for Subprime-Backed Securities
Structured finance securities backed by 2006 and 2007 vintage subprime loans are likely to see further ratings downgrades this year, according to Moody’s Investors Service.
Moody’s recently updated its loss projections for 2006 subprime mortgage loans and stated that it was in the process of updating loss projections for 2007
subprime loans as well.
As a result of more bearish views on 2006- and 2007-vintage subprime loan pools in recent months, with cumulative loss scenarios ranging from 12% up to 24%, Moody’s expects that many subprime RMBS securities originated in 2006 and early 2007 and SF CDOs backed by these securities will sustain more negative rating activity in 2008.
Other notable observations in Moody’s latest Structured Finance CDO Ratings Surveillance Brief :
- By the end of January, roughly 55.9% and 41.8% of US SF CDO securities rated in 2007 and 2006, respectively, have been downgraded.
- For US SF CDO securities rated in 2006 and 2007, the frequencies of lifetime downgrade into Caa or below since 2007 were approximately 2.9% for securities rated Aaa at issuance and 13.4% for Aa-rated securities, compared to 25.3%, 39.8% and 55.0% for single-A, Baa-, and Ba-rated securities.
- By February 15, 2008, Moody’s has received notices of OC-linked Event of Default (EOD) on 96 US SF CDO deals or about 14.7% of the total number of US SF CDO deal Moody’s rated in 2006 and 2007.
- Outside the SF CDO sector, Moody’s downgraded 14 tranches from three market-value CDO deals and there was no upgrade in the first month of 2008 for the entire U.S. CDO sector.
The number of SF CDO tranches downgraded fell slightly in January after a sharp drop in December, but the dollar volume edged up:
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