S&P reviews credit derivatives either to assign a rating to a CLN or to review a CDS being purchased to be used in a collateralised debt obligation (CDO). The latter is termed assigning a ‘credit estimate’. S&P said that in the first half of 2003, the percentage of credit estimates it provided was 16% of total synthetic transactions. In the first half of 2002, credit estimates made up almost 55% of activity.
“Part of the decline could be attributed to the uncertainty that FIN 46 cast on the CDO market,” said S&P. The US Financial Accounting Standards Board (FASB) issued financial interpretation number 46 (FIN 46) in January. The ruling clarified earlier US accounting policy changes related to special-purpose entities (SPEs). Its objective is to improve financial reporting and disclosure by companies involved with variable rate entities, a broad term used by FASB to incorporate most SPEs.