Fitch Ratings said this morning that it is re-assessing its rating methodology and modeling assumptions surrounding new-issue CDOs. From the press statement:
For CDOs collateralized by structured finance securities, the review includes a reassessment of subprime vintage performance and associated loss severity and correlation. Additionally and more broadly, Fitch is reviewing its core VECTOR modeling assumptions and methodology that could impact ratings of all CDOs including those with corporate bond or corporate loan collateral. Key review factors include default probability, ratings migration, credit concentrations and recovery assumptions. Fitch will complete ratings on new issue CDO transactions that price between now and Nov. 15, but investors should be aware that Fitch is reassessing its analytic views which could impact existing ratings. Fitch will not publish new ratings after Nov. 15 on any CDOs that could be impacted by the changes, until the reassessment of the methodology is complete. The review is expected to be completed in four weeks.
Fitch's language suggests clearly that the result of this review process won't be surprise upgrades, so look for a slew of new-issue CDO downgrades in the next month or so. (That's on top of the downgrades that have already been issued.) For more information, visit