2,071 cash CLO tranches downgraded in Moody's review first stage

Moody's announced today that it has completed the first stage of its two-stage review of US and EMEA cash flow CLOs that it announced on 4 March. As of 23 March, Moody's downgraded 2,071 tranches from 668 transactions, totaling $46 billion.

All tranches downgraded during this stage were previously rated single-A or below. Of the 2,071 affected tranches, 50% were downgraded by four notches, 33% by five notches and the remaining 17% by six to eight
notches. A total of 1,604 downgraded tranches were from 528 US CLOs, with the remainder from European securitisations.

During this first stage, Moody's also placed 36 senior-most Aaa CLO tranches on review for downgrade. These negative review decisions were a result of significantly weaker than average structures and portfolio performance.

Moody's used a parameter-based approach for most cash flow CLOs to calibrate downgrades of tranches rated single-A and below. In stage two, which will begin immediately, Moody's will perform a more comprehensive analysis by modeling each CLO individually, including all deals that were analysed in stage one. At that time, additional rating actions will be taken as necessary for all rated liabilities, including tranches currently rated Aa and Aaa. Although Moody's expects most senior triple-A ratings to be confirmed, there will be a number that will be downgraded, in most cases to the double-A rating category.