Fitch slashes CLO recovery assumptions

By Mike Peterson

Tuesday, July 06, 2010

Fitch Ratings has made another big change to the way it rates corporate CDOs, only two years after introducing a new rating methodology

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Comment by: Michael Peterson. Posted 13 years ago [2010-07-07 11:39:44]

Fitch points out that its previous recovery assumptions for "group A" countries of 70% for loans and 40% that we cited were bonds were for rating to BB not AAA. For rating to AAA, the recovery assumptions have been cut from 56% to 40% for loans and 32% to 15% for bonds. A spokesperson adds that Fitch does not expect significant rating actions as a result of the change.

Comment by: Anonymous. Posted 13 years ago [2010-07-06 16:32:32]

Wrong again! 70% was too high in many cases and 40% will be too low for most bank loans. This will cause Fitch perhaps to lower the few AAA CLO deals they rated just when it is becoming clearer that the AAA rated tranches are likely to make it through this high default period relatively unscathed. Of course they could say this change is only for new deals and does not apply to their surveillance metrics!

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