by Calculated Risk on 10/29/2007 02:54:00 PM

Fitch Completes Review of All Fitch-Rated SF CDOs; Places $36.8B on Rating Watch Negative

Following a comprehensive global review of the 431 Fitch-rated structured finance collateralized debt obligations (SF CDOs) representing $300.1 billion of outstanding debt, Fitch has placed 150 transactions, representing $36.8 billion, on Rating Watch Negative.
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Of the $23.9 billion of AAA rated securities on Rating Watch Negative, approximately two-thirds ($16 billion) represent 'AAA' rated tranches of mezzanine subprime deals, and CDO-squareds containing these tranches. The ratings from these deals are expected to suffer the most severe downgrades. While a full analysis remains to be completed, preliminary indications are that a three-to-four rating category average downgrade is to be expected for most of this group, with the revised ratings in the range of 'BBB' to 'BB-'.

The remaining $7.8 billion of 'AAA' rated notes on Rating Watch Negative are from high grade subprime RMBS, prime/Alt-A SF CDOs, and synthetic SF CDOs of all types. The magnitude of downgrade for these deals is expected to be less severe, averaging one-to-two categories with revised ratings ranging from 'AA' to 'A-'.

The ratings subject to Rating Watch Negative from classes currently carrying ratings of other investment-grade categories ('AA', 'A', and 'BBB') are expected to suffer downgrades to below investment grade.