Fitch: CDO ratings not affected by Japan Airlines bankruptcy
19-Jan-2010 The bankruptcy filing by Japan Airlines Corp. (JAL) today will not impact the ratings of corporate synthetic collateralized debt obligations (CDOs), according to Fitch Ratings.
JAL is referenced globally in one Fitch-rated synthetic CDO out of a total global universe of 270 corporate synthetic CDOs. Exposure to JAL in these transactions is limited due to a combination of JAL's speculative credit grade and minimal exposure to high yield corporate credits from the Asia-Pacific region within Fitch-rated synthetic CDOs. Additionally, the Fitch-rated transaction with JAL exposure is a single-tranche CDO with a distressed rating that is unlikely to be affected by a loss following JAL's credit event settlement, given its exposure to JAL is less than 1%.
Investment-grade ratings on corporate synthetic CDOs are largely expected to be stable through 2010. However, further downgrades are expected in lower rating categories. Further defaults or credit events are expected to erode the thin remaining credit protection for non-investment-grade tranches, resulting in an increasing number of 'CCC' and below rated tranches defaulting.
Fitch will continue to carefully monitor underlying corporate credit migration in Fitch-rated CDOs. If losses are projected to exceed expectations, Fitch will take rating action accordingly.