Moody's says some Aaa CLO tranches face downgrade

Moody's announced today that it has put nearly all the tranches of CLOs that it rates on review for downgrade, except for seniormost Aaa CLO tranches. A total of 3,600 tranche, with a face amount of $100 billion are affected by the action, which covers 760 individual CLOs. The move is not unexpected. On 4 February the rating agency said that it was changing its methodology for CLOs, increasing its default assumption and its correlation assumption. It had warned that this would likely lead to downgrades of between three and six notches for tranches below Aaa.
However, the downgrade reviews also include a number of junior Aaa tranches, as well as most CLO combination notes. Moody's also says that it will perform an initial "parameter-based calibration" between now and the end of March, which could lead to some senior-most Aaa tranches also being put on downgrade watch. Moody's deal-by-deal modeling of all CLOs will begin at the end of March, with all the downgrades due to be completed by the end of June.