S&P seeks comments on plans to change CDO rating methodology

Standard & Poor's has requested feedback on proposed changes to its rating methodology for CDOs backed by structured finance securities. The rating agency has drawn up a list of 15 items which will come under consideration. One of the proposals contemplates increasing the correlation modelling parameters within the same structured finance asset class and also between different structured finance asset types.     

These changes are designed to mirror the core model used to rate CDOs backed by corporate debt which was implemented in September 2009. If these amendments are adopted, S&P expects that there will be a ‘significant downward effect’ on the ratings of CDOs of ABS. Market participants have until 12 November to respond to the proposals.