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.
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.