S&P places six Asia-Pacific CDOs on CreditWatch negative

Standard & Poor’s Ratings Services (S&P) has placed the ratings on six Asia-Pacifc synthetic collateralised debt obligations (CDOs) on 'CreditWatch with negative implications'. The agency affirmed the ratings on two other CDOs.

The Asia-Pacific CDOs placed on CreditWatch negative were ARLO Ltd Series 2006 (Opus – 1), Corsair (Jersey) No2 Ltd Series 69, Echo Funding Pty Ltd Series 19, Echo Funding Pty Ltd Series 20, Echo Funding Pty Ltd Series 21 and Obelisk Trust 2006-1 Eden. The SROC (synthetic rated overcollateralisation) levels for these CDOs fell below 100% during the end-of-month SROC analysis for June 2006, leading S&P to place their ratings on CreditWatch negative. The ARLO Ltd Series 2006 (Opus – 1) was a ¥1 billion ($8.7 million) synthetic CDO transaction arranged by Barclays Capital and referenced to a portfolio of mainly European and American names, and some Australian and Asian names. The Echo Funding Pty Ltd Series were originated by ANZ Banking Group, and the Obelisk Trust 2006-1 Eden is a A$52.5 million transaction due April 2011 by Société Générale. At the same time, S&P affirmed the AA- rating on Obelisk Trust 2005-1, and the BBB- rating on Security Holding Investment Entity Linking Deals Pty Ltd Series 8. S&P said the latest action was in line with changes to the format of its SROC report in December 2005. The June SROC report is due to be published shortly, following a full review of tranches for which SROC was below 100%. The agency added that in the week following the publication of the June SROC report, a full review of the affected tranches will be performed and appropriate rating actions, if any, will be taken. The SROC methodology captures the major influences on a portfolio’s performance, such as events of default, asset migration, amortisation of assets and time decay. When SROC is 100%, there is exactly 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. Since the April 2006 SROC report, 135 tranches across the globe have been subject to rating actions by S&P.

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