Lehman default hit CSOs hardest, says Standard & Poor's

The Lehman Brothers credit event has had by far the biggest impact on CSOs, according to a new report by Standard & Poor’s. The rating agency assessed the incidence and severity of different corporate and sovereign credit events among the 961 synthetic CDOs rated by it New York office.

It found that although Fannie Mae and Freddie Mac are referenced in a large proportion of deals, the impact of these two credit events is relatively small given their high recoveries. Other names, such as by Lyondell and Smurfit-Stone, are less widely referenced in the CSO market. But given the low recoveries on these credits, their default had a relatively big impact.

However, Lehman Brothers - and to a lesser extent Washington Mutual and the Icelandic banks – hit CSOs hard because they are both widely referenced and had low recoveries.

Credit events since 2008 with most impact on CSOs

Source: Standard & Poor's

Credit events most widely referenced in CSOs

Source: Standard & Poor's