Synthetic collateralised debt obligations (CDO) are unlikely to experience downgrades on the back of weakening credit ratings in the US automotive sector, says Fitch RatingsAccording to its sensitivity analyses of structures with a high exposure to the auto sector, a downgrade of General Motors will have no impact on the overall CDO rating. Only when the CDOs were stressed to the point that all autos referenced were downgraded did some CDO ratings come under pressure for downgrade, the ratings agency said.
However, CDOs could be exposed to some level of event risk. The underlying credit default swaps are triggered by debt restructuring, as well as bankruptcy and failure to pay. Weaker credits among automotive parts suppliers rather than the automotive companies would be more vulnerable to these credit events, Fitch said.
The rating agency’s research included a variety of synthetic CDO transactions, with a particular focus on CDOs of CDOs, also known as CDO squared. Within the rating agency’s global synthetic index, which consists of more than 350 CDOs, exposure to the automotive sector in this year's deals is just over 7%.
More on Credit Derivatives
China's CDS market needs new structure if it is to win over investors
Arbitrageurs have exited trades, leaving basis structurally higher
Managed deals could be next, but market's potential is expected to be limited
Sign up for Risk.net email alerts
Sponsored video: Tradeweb
Multifonds talks to Custody Risk on being nominated for the Post-Trade Technology Vendor of the Year at the Custody Risk Awards 2014
Sponsored webinar: IBM Risk Analytics
There are no comments submitted yet. Do you have an interesting opinion? Then be the first to post a comment.