Fitch trups CDO change will lead to new wave of downgrades

Trups are not debt instruments anyway, which means the rating agencies' default studies weren't applicable to rating trups CDOs. For them to have gotten comfortable rating these deals looked like knocking square pegs into round holes and this latest methodology change is just another way of backpedaling out of a decision made during bullish times.

This change by Fitch is an excellent example of the perils of model dependency, especially when combined with poor surveiallnce procedures and surveilance analysts lacking in fundamental credit experience. Not to pick only on Fitch, the degree of model reliance afflicts all the major rating agencies and explains, in part, why the ratings on structured deals are often stale and downgrades can be as much as 4 to 10 notches. This poor performance in structured would be simply unacceptable in industrials or financial firms and is a huge disservice to structured investors who rating agencies are suppose to serve!