Rating Agency, UBS React To Debt Concerns

Fitch Rating says it might cut the highly prized AAA ratings of some financial guarantors.

The cuts could result from a close look at the structured finance collateralized debt obligations the financial guarantors have insured, according to Fitch, Chicago.

The quality of the underlying collateral could play a big role in what happens to the risk ratings of the SF CDOs, and it’s possible that enough CDO ratings could “migrate” to hurt the ratings of some guarantors, Fitch says.

If a guarantor fell short of the Fitch capital requirements for a company with an AAA rating, Fitch would give the company a month to try to raise enough capital or reduce enough risk to allow the company to meet the AAA standards, Fitch says.

But Fitch “recognizes that recent capital markets volatility, including sharp declines in the share prices of the publicly traded financial guarantors, may make capital raising efforts difficult unless market conditions improve,” the rating agency says.

Meanwhile, in related news, Andrew Kligerman, an insurance analyst at UBS Investment Research, New York, has published a comment on a recent conference call with Douglas Lucas, head of UBS collateralized debt obligation research, and Tom Zimmerman, head of UBS asset-backed securities research.