CDO can't repay note holders after liquidation: S&P
NEW YORK (Reuters) - Standard & Poor's on Wednesday said that proceeds from the forced liquidation of mortgage-backed securities by a collateralized debt obligation will be insufficient to pay back investors in the deal.
The CDO, sold by Credit Suisse Alternative Capital and dubbed Adams Square Funding I Ltd, was forced by its trustee to liquidate its assets after a collateral trigger in the deal was tripped, which led to an "event of default."
CDOs repackage assets ranging from mortgages to credit card receivables into bond structures designed to diversify risk. Many top-rated CDOs have been downgraded multiple notches because of deteriorating mortgage loan values.
S&P cut all of the notes in the deal, totaling $487.25 million, to default. On average, the assets and credit default swaps liquidated by the deal returned less than 25 percent of their par value, S&P said.
Proceeds from the asset sale, in addition to collateral held in the deal, will not be sufficient to pay back the CDO's most senior noteholders, originally rated "AAA," and no proceeds will be available for any other noteholders, S&P said.
"These rating actions are more severe than would be justified had liquidation not been ordered, in which case our rating actions would have been based on the credit deterioration of the underlying collateral," S&P added.
It is rare for a CDO to be forced to liquidate. S&P has received one other notice that a similar deal, called Carina CDO, will also liquidate, it said. The rating agency received event of default notices on 33 U.S. CDOs backed by mortgages, including Adams Square, through Tuesday.
(Reporting by Karen Brettell; editing by Jonathan Oatis)
