April 30, 2008 / 11:03 AM / 10 years ago

Fitch unveils CDO overhaul, sees many affirmations

LONDON, April 30 (Reuters) - Fitch Ratings unveiled a new methodology on Wednesday for rating corporate collateralised debt obligations, which it said would lead to affirmations of many ratings and downgrades of some others by several notches.

In early February, Fitch announced an initial proposal that it said would lead to an average downgrade of five notches of the $75 billion worth of synthetic, investment-grade CDOs it rates.

Investors then expressed fears the overhaul could kick the credit derivatives market into another tailspin. At end-March, the ratings agency extended its review and said its new plans would lead to less severe downgrades than initially expected.

In contrast with their comments in February, Fitch executives declined to provide any figures on how many of the 400 CDOs they rate would be affected and to what degree.

“The overall framework and the risks we are capturing has not changed. What has changed is certain nuances of the application, and we believe it is a more refined approach,” said Ken Gill, Fitch managing director for structured credit. “There has been no dilution of the analytical approach at all.”

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