Friday, November 09, 2007

Liquidation: Do Not Want

This really isn't my world, but I'm having a hard time interpreting this as anything other then S&P punishing an entity for daring to sell off its financial assets at market prices.

TOKYO, Nov 9 (Reuters) - The trustee of a $1.5 billion collateralised debt obligation (CDO) managed by State Street Global Advisors has started selling assets, apparently starting a process of liquidation, Standard & Poor's said late on Thursday.

The news from the ratings agency raised worries of similar action on a wider array of structured securities, and stirred more fears about the exposure of U.S. financial institutions to credit markets.


S&P said it slashed its ratings on Carina CDO Ltd's top tranche of securities by 11 notches to the junk level of BB from the top-notch triple-A after it received a notice on Nov. 1 saying that the controlling noteholders had told the trustee to liquidate.


The ratings cut on the Carina CDO is more severe than would be justified by the deterioration of the underlying assets because a decision to liquidate would depress prices and affect all notes that were issued, S&P said.

S&P said the ratings on the top two parts of the CDO would only be trimmed by one or two notches if the liquidation notice were withdrawn, but any selling will lead to material losses and market prices may not recover during the liquidation period.

This just isn't big enough of a shitpile to "depress prices," but it is a big enough of a shitpile to "reveal prices." That is, to put a market price on this crap so that others with similar shitpiles are forced to actually put forward an accurate valuation of them.

At least that's how I see it. Maybe I'm wrong.

(via CR)