Sub-prime debt ratings take new hit

From Times Wire Services

Securities rating companies began a new wave of rating downgrades Thursday as they reassessed the fallout from deteriorating sub-prime loans, drawing increased scrutiny from investors who questioned why the firms failed to act earlier.

Moody’s Investors Service and Standard & Poor’s are ratcheting down ratings or revising downward their forecasts on billions of dollars of debt because of lowered outlooks on the U.S. housing market.

S&P; on Thursday cut ratings on $5.7 billion of sub-prime-related securities it had put on watch earlier this week. S&P; and Moody’s now project that cumulative losses for sub-prime loans originated in 2006 will reach as high as 14%, more than double what they had projected at the start of the year.

“That’s a huge change in their projections and has huge implications for the market,” said Inna Koren, an analyst at Barclays Capital in New York.


Fitch Ratings also on Thursday said it might lower ratings on 19 collateralized debt obligations, or CDOs -- debt structures that are backed in this case by risky home loans -- and has revised its CDO rating methodology, identifying 170 U.S. sub-prime transactions as requiring further analysis.

Of those, the total amount of bonds rated in the “BBB” category and below -- the most likely to face rating actions -- is $7.1 billion.

CDOs are debt structures that bundle several types of debt, including junk bonds or securities backed by pools of risky home loans.

In a conference call Thursday, Moody’s said it was also raising its expectations for losses on several types of sub-prime mortgages, which could lead it to lower more ratings.