Recent research from Lehman Brothers shows that 11 out of the 20 most popular credits included in 2006 vintage synthetic CDOs have suffered downgrades. In the latest issue of their Structured Credit Monthly report, Lehman analysts say there may be multi-notch downgrades of CSOs as a result of deterioration in the underlying portfolios. However, Lehman does not expect a panic sell-off, since these downgrades are already reflected in the valuations on many deals.

Lehman’s analysis shows that the most popular names in CSOs put together in 2006 include Countrywide (subsequently downgraded five notches by Standard & Poor’s) and Radian (which has fallen four notches by S&P), as well as other names that have seen their Moody’s or S&P ratings cut by one to three notches.