CDOs unlikely to be affected by GM and Ford, says Fitch

Synthetic collateralised debt obligations (CDO) are unlikely to experience downgrades on the back of weakening credit ratings in the US automotive sector, says Fitch Ratings

According 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%.

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