A seminal, but not unexpected, event transpired in the credit market this past month: S&P’s downgrade of Ford and GM, which finally took the two auto giants out of the investment-grade market. The event was alternately described as a catastrophe and a non-event, but undoubtedly has kept everyone busy predicting the fallout from such an enormous move.

On page 44, we look at how the shock of auto spreads moving out helped initiate a major repricing in the correlation market, putting pressure on credit default swaps and cash bond spreads, and perhaps heralding a shift in the way that the CDO market has buoyed cash bond spreads in the past.

But not to lose sight of all the other important changes going on in the market, on page 38 we also take a look at how origination desks will be affected now that 17 investment banks settled out of court for $6 billion after holders of $13 billion of WorldCom bonds sued the underwriters for failing to adequately examine the telecom giant’s financial health before selling its debt.

Whether it’s the fallout in the auto sector or issuer liability, this summer is gearing up to be an exciting one for the corporate bond market.

Richard A. Bravo, Editor

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