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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.

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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.


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