Fitch sees increasing number of CDO events of default

Derivative Fitch says it has received two event-of-default notices from CDOs to date and says there is an increaing likelihood of CDO events of default in a new report. The rating agency says that structured finance CDOs and CDO-squared originated in 2006 and 2007 are the most vulnerable to events of default, and says that investors should properly examine their deal documents in order to understand fully the effects of an event of default.

In an event of default, the controlling class on a transaction (usually the most senior noteholders) can vote to either accelerate payments to noteholders or to liquidate assets.