Fitch upgrades capacity for CDO default risk tool

Fitch Ratings has upgraded its Default Vector model, which evaluates default risk in collateralised debt obligation (CDO) portfolios.

Vector is used to analyse exposures in CDO portfolios, including asset-backed CDOs, leveraged loans and investment-grade corporates, which typically have 100 to 200 exposures. It is also used for synthetic CDO-squared transactions. Vector 2.1 can now accommodate 50 CDOs in total, up from version 2.0’s capacity of 30. The two versions are otherwise unchanged.

“It's an asset model, not a cashflow model”, said Matthias Neugebauer, London-based director at Fitch Ratings. “It produces expected default rates and expected loss rates for the portfolio,” he added. The CDO-squared market usually has between five and 15 CDO transactions, but the extra capacity gives users the option of analysing more than 30 if required.