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NEW YORK (Standard & Poor's) March 23, 2009--On March 16, 2009, Standard &
Poor's Ratings Services published "Request for Comment: Update to Global
Methodologies And Assumptions For Corporate Cash Flow CDO And Synthetic CDO
Ratings" (the RFC). We released a supplement to the RFC, "Supplemental
Information For Update To Global Methodologies And Assumptions For Cash Flow
CDO And Synthetic CDO Ratings," on March 20, 2009. The supplement explains how
we recalibrated CDO Evaluator 4.1 for the purpose of estimating the potential
ratings impact of some of the proposed default stresses on existing
transactions, as the RFC describes. The article also provides the proposed
corporate default, correlation, and CDO rating cutpoint tables that we used in
that recalibration.
Since we released the RFC, Standard & Poor's has received a number of
inquiries about how users could modify the CDO Evaluator 4.1 model to run the
new proposed default stresses as we did for the RFC.
Accordingly, to help market participants understand the potential impact
on existing CDOs due solely to the proposed recalibration of CDO Evaluator, we
are providing the following instructions for modifying certain CDO Evaluator
tables. We encourage market participants to review the entire RFC for a full
explanation of the proposed recalibration.
PROCEDURE FOR RUNNING CDO EVALUATOR 4.1 WITH THE PROPOSED CRITERIA
To download these instructions and the new tables, paste in your browser:
https://www.ratingsdirect.com/Running_RFC_criteria_in_CDOE4_1.xls
1. Open CDO Evaluator 4.1.
2. Click on the "Reset All Tables to S&P Criteria" button located near cell G3
on the Default Tables worksheet in CDO Evaluator.
3. Copy "Table 1: Corporate Default Table" (cells C4 through U33) on the
Default Tables worksheet in this spreadsheet to the Corporates table (cells C8
through U37) on the Default Tables worksheet in CDO Evaluator.
4. Copy "Table 1: Corporate Default Table" (cells C4 through U33) on the
Default Tables worksheet in this spreadsheet to the CDO Tranches table (cells
C45 through U74) on the Default Tables worksheet in CDO Evaluator.
5. Copy "Table 2: CDO Rating Cutpoint Table" (cells C42 through U71) on the
Default Tables worksheet in this spreadsheet to the CDO Rating Quantile table
(cells C193 through U222) on the Default Tables worksheet in CDO Evaluator.
6. Click on the Reset All Correlations to S&P Criteria button located near
cell D2 on the Correlation Assumptions worksheet in CDO Evaluator.
7. Enter the following values for the Between-Sector Corporate Correlation
Assumptions on the Correlation Assumptions worksheet in CDO Evaluator:
(Note that 0.075 will appear as 0.08 because the cell is formatted for two
decimal places. This will not cause any problems.)
a. Within Country (Cell B12): 0.075
b. Within Region (Cell B17): 0.075
c. Within Region (Cell B22): 0.05
8. Enter the following values for the Within-Sector Corporate Correlation
Assumptions on the Correlation Assumptions worksheet in CDO Evaluator:
a. Within Country - Local (Cell G11): 0.20
b. Within Country - Regional (Cell G12): 0.20
c. Within Country - Global (Cell G13): 0.20
d. Within Region - Local (Cell G16): 0.20
e. Within Region - Regional (Cell G17): 0.20
f. Within Region - Global (Cell G18): 0.20
g. Between Regions - Local (Cell G21): 0.05
h. Between Regions - Regional (Cell G22): 0.05
i. Between Regions - Global (Cell G23): 0.20
9. C
opy the values in the Correlation Override table (cells B31 through F86)
on the Correlation Assumptions worksheet in this spreadsheet to the
Correlation Override table (cells B31 through F86) on the Correlation
Assumptions worksheet in CDO Evaluator.
The Correlation Assumptions worksheet in CDO Evaluator should now have the
same values as the Correlation Assumptions worksheet in this spreadsheet.
When running CDO Evaluator, select the Modified radio button under
Correlation Assumptions, and the Modified radio button under Default Tables on
the Run SDR/SLR (Monte Carlo Simulation) dialog box. If you do not select
Modified, CDO Evaluator will use the Version 4.1 default and correlation
assumptions.
Remember to save the CDO Evaluator spreadsheet after making these
changes.
We are providing these instructions, and the attached tables, for
illustrative purposes only, to help market participants estimate the potential
ratings impact of the proposed recalibration of CDO Evaluator 4.1 as the RFC
describes. Any ultimate changes to criteria and to CDO Evaluator may differ.
Similarly, individual ratings decisions are made by a committee of Standard &
Poor's analysts; outputs from CDO Evaluator are only one part of a committee's
analysis. Standard & Poor's ratings analysis may take into account many
additional factors not reflected in the tables or CDO Evaluator. Standard &
Poor's does not recommend these tables or CDO Evaluator for analyzing
investments and bears no responsibility for actions you may take based on the
information provided in this release.
RELATED RESEARCH
-- "Request for Comment: Update to Global Methodologies And Assumptions
For Corporate Cash Flow CDO And Synthetic CDO Ratings," published March 16,
2009.
-- "Supplemental Information For Update To Global Methodologies And
Assumptions For Cash Flow CDO And Synthetic CDO Ratings," published March 20,
2009.
-- "Credit FAQ: Proposed Changes To Global Methodologies And Assumptions
For Rating Corporate Cash Flow And Synthetic CDOs," published March 19, 2009.
-- "Summary And Highlights Of Proposed Changes To Our Global Rating
Methodology For Corporate Cash Flow And Synthetic CDOs," published March 17,
2009.
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information, visit www.standardandpoors.com.
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