S&P places three Hong Kong CDOs on negative credit watch

Standard & Poor’s has placed the ratings on three Hong Kong synthetic collateralised debt obligations (CDOs) on credit watch with negative implications. The agency affirmed the ratings on two other Hong Kong CDOs.

The three CDOs placed on credit watch negative are the Beryl Finance Ltd Series 2005-5, Omega Capital Investments PLC Series 14 and Thunderbird Investments PLC Series 22.

S&P said the actions are in line with changes to the format of its synthetic rated over-collateralisation (SROC) report in December 2005. The three deals placed on credit watch negative had SROCs of less than 100% during the month-end run, S&P said.

The agency is undertaking a full review of all tranches, and the appropriate actions will be published in its February SROC report.

The SROC methodology captures the major influences on a portfolio’s performance: events of default, asset migration, amortisation of assets and time decay. When SROC is 100%, there is sufficient credit enhancement to maintain a rating on a tranche. When SROC is below 100%, the provided level of credit enhancement does not meet S&P’s estimation of the required first-loss amount at a given rating level.

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