The agency noted that static synthetic transactions are progressively being replaced by managed synthetic deals.
Moody's added that it expects more esoteric CDOs to emerge, containing portfolios such as asset-backed security re-securitisations, hedge funds, private equity and macro-hedge transactions backed by highly diversified assets.
Moody’s also said that, despite the huge growth in volumes, CDOs had a difficult year in terms of ratings actions with 152 tranches downgraded compared with three upgrades. “A significant proportion of the downgrades are attributable to static synthetic deals, many of which share similar names in their portfolios. This means that one major credit event can have an impact on several transactions,” said the report.
The spate of downgrades is likely to persist, said Moody’s, as the credit markets continue to experience volatile conditions.