US CDOs to escape worst subprime damage

Risk staff
01 May 2007

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US synthetic CDOs will suffer only slight damage from the continuing crisis in US subprime mortgages, says rating agency Derivative Fitch.

In a study, the agency stress-tested all rated synthetic CDOs by simulating a three-level downgrade of all US subprime reference entities. It found that such a downgrade would affect approximately 27% of tranches of exposed CDOs, with an average downgrade of 2.4 notches.

Fitch found that 72 CDOs - 9% of all rated CDOs - were exposed to subprime residential

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