Monday, May 18, 2009

Rating agencies are still at it.

Here is a Deutsche Bank CLO - corporate debt collateral that DB is probably securitizing to reduce regulatory capital. A good guess is it was part of an unwound Total Return Swap they ended up stuck with.

Fitch was able to rate the senior tranche AAA. The debt to equity ratio (AAA to sub) here is 2.5 : 1 - which is is quite a low leverage for a CLO. However if you look carefully, it's 67% unsecured debt (up to 75%). That seems aggressive. Possibly in 06 one could do a deal like this, but this is pushing it. Are the agencies pushing the envelope again?

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