CDO

Rating Agency Developments – Week of February 13, 2012

On February 7, DBRS released its methodology for CLOs and CDOs of large corporate credit. DBRS Methodology.

On February 7, DBRS released its Canadian surveillance methodology for CDOs of large corporate credit. DBRS Methodology.

On February 7, DBRS released its cash flow assumptions for corporate credit securitizations. DBRS Methodology.

On February 6, DBRS released its swap criteria for European structured finance transactions. DBRS Methodology.

On February 6, DBRS released its operational risk assessments for European ABS and SME CLO servicers. DBRS Methodology.

On February 6, DBRS released its operational risk assessments for European RMBS servicers. DBRS Methodology.

On February 6, DBRS released its master European structured finance surveillance methodology. DBRS Methodology.

On February 6, DBRS released its legal criteria for European structured finance transactions. DBRS Methodology.

Loreley Financing Sues Citigroup Over CDO Investments

On January 24, 2012, several Loreley Financing Ltd. entities filed a complaint in New York state court against several Citigroup affiliates over nearly $1 billion in CDO investments backed by subprime mortgages, purchased in 2006 and 2007. Loreley alleges that Citigroup knowingly misrepresented the quality of the mortgage loans in order to transfer risk from its balance sheet. Loreley further accuses Citigroup of concealing the role of Magnetar in designing certain CDOs. Loreley asserts claims for common law fraud, rescission of contract, fraudulent conveyance, and unjust enrichment, and seeks rescission, disgorgement, injunctive relief, and damages. Complaint.

Rating Agency Developments – Week of January 17, 2012

On January 11, Fitch updated its U.S. equipment lease and loan rating criteria. Fitch Release.

On January 11, Moody’s updated its approach for monitoring CPDO transactions. Moody’s Release.

On January 9, DBRS proposed methodology for CLOs and CDOs of large corporate credit and requested comments by January 27. DBRS Release.

On January 9, DBRS proposed cash flow assumptions for corporate CLOs and CDOs backed by other corporate debt and requested comments by January 27. DBRS Release.

On January 9, DBRS released its unified interest rate model for U.S. and European structured credit. DBRS Release.

On January 9, DBRS proposed methodology for surveillance Canadian CLOs and CDOs backed by debt of large corporations and requested comments by January 27. DBRS Release.

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Rating Agency Developments – Week of January 9, 2012

On December 28, S&P updated its methodology for analyzing corporate profitability when determining issuer credit ratings for global corporate issuers. S&P Release.

On December 27, S&P issued an advance notice of criteria change for its methodology for rating second-lien U.S. RMBS transactions. S&P Release.

On December 22, S&P released its outlook assumptions for the U.S. residential mortgage market. S&P Release.

On December 20, S&P updated its project finance construction and operations counterparty methodology. S&P Release.

On December 19, DBRS released its methodology for rating global structured finance CDO restructurings. DBRS Release.

On December 19, DBRS released its unified interest rate model for global structured finance CDO restructurings. DBRS Release.

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Rating Agency Developments

On December 2, Moody’s updated its approach to rating fleet lease-backed ABS. Moody’s Report.

On December 1, Fitch released its surveillance criteria for U.S. CRE CDOs and CMBS large loan floating-rate transactions (floating-rate CMBS pools which have up to 50 loans remaining). Fitch Release.

On December 1, S&P requested comments on its methodology for rating U.S. public finance long-term municipal pools. S&P Release.

On November 29, S&P released definitions and related analytic practices for covenant and payment provisions in U.S. public finance revenue obligations. S&P Release.

On November 29, S&P released its rating approach for U.S. public finance obligations with multiple revenue streams. S&P Release.

On November 29, S&P revised its methodology for rating U.S. ABS auto lease securitizations. S&P Release.

On November 29, Fitch published updated criteria for rating linkages in nonbank financial subsidiary relationships. Fitch Release.

On November 21, S&P released a request for comments on a proposed expansion to its methodology and assumptions for assessing derivative obligations and certain amendments to other aspects of counterparty and supporting party risk criteria. S&P Release.

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SEC Settles CDO Suit Against Citigroup

On October 19, 2011, Citigroup agreed to pay $285 million to settle charges that it structured and marketed a $1 billion collateralized debt obligation without disclosing that it had taken a $500 million short position against the CDO. In particular, the complaint, filed as a settled action by the SEC in federal court in New York, alleges that Citigroup Global Markets, Inc. failed to disclose to investors that it influenced the selection of a large portion of the mortgage loans underlying the CDO and then retained a short position in the assets it had helped select. The SEC alleges that this conduct violated Sections 17(a)(2) and (3) of the Securities Act of 1933. The SEC’s related claims against Brian Stoker, a former Citi employee who allegedly structured the CDO, are still pending. Press Release.

Rating Agency Developments

On October 6, Fitch updated is structured finance CDO rating criteria. Fitch Release.

On October 4, Fitch outlined its structured finance rating process. Fitch Release.

On September 30, Fitch updated its guidelines on managing criteria and models. Fitch Release.

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Rating Agency Developments

On August 12, Fitch updated its core corporate criteria reports. Fitch Release.

On August 11, Fitch updated its criteria for rating insurance-linked securities. Fitch Release.

On August 11, Fitch updated its criteria for rating SPV currency swap obligations in structured finance transactions. Fitch Release.

On August 11, Fitch updated its criteria for rating repackaged senior structured finance notes. Fitch Release.

On August 10, Fitch updated its assumptions used in assessing the credit risk of residential mortgage loan pools in various regions. Fitch Portuguese Release. Fitch Italian Release. Fitch German Release. Fitch European Release.

On August 10, Fitch updated its corporate and project finance CDO rating criteria. Fitch Release.

On August 10, Fitch published its Asia-Pacific (APAC) RMBS criteria and updated its Australian RMBS rating criteria as an addendum to this report. The APAC RMBS framework will replace the Australian Residential Mortgage Default Criteria (dated April 2008) and the Criteria for Rating Japanese RMBS (dated November 2001). Fitch Release (APAC RMBS). Fitch Release (Australian RMBS).

On August 10, Fitch published its global criteria for lenders’ mortgage insurance in RMBS transactions. Fitch Release.

On August 10, Fitch published its APAC consumer ABS rating criteria. Fitch Release.

On August 10, Fitch updated its U.S. water and sewer revenue bond rating criteria. Fitch Release.

On August 9, Fitch updated its structured finance rating caps criteria. Fitch Release.

On August 5, Fitch updated its rating criteria for toll roads, bridges, and tunnels. Fitch Release.

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Dexia SA Cites Deutsche Bank’s Internal MBS Descriptions In Suit Over $1 Billion in RMBS Purchases

On July 13, 2011, Dexia SA filed a lawsuit in New York State Supreme Court against Deutsche Bank AG and several of its affiliates in connection with its purchase of more than $1 billion in RMBS between 2005 and 2007 from the Deutsche Bank defendants. Dexia asserts state law claims for fraud, fraudulent inducement, aiding and abetting fraud and negligent misrepresentation. The complaint alleges that the defendants made false or misleading statements to prospective investors touting the quality of the RMBS, the underlying loans and the defendants’ due diligence process while, at the same time, defendants’ internal documents disparaged the RMBS and the defendants took positions in CDOs and credit default swaps that were effectively betting against the performance of similar RMBS. Dexia Complaint vs. Deutsche Bank.

JP Morgan Settles with the SEC for $154 Million Over CDO Disclosures

On June 21, 2011, the SEC announced that JP Morgan Chase & Co. agreed to pay $153.6 million in disgorgement and penalties to settle claims brought by the SEC in the Southern District of New York. The SEC alleged that JP Morgan structured and marketed a $1.1 billion collateralized debt obligation and failed to disclose that the hedge fund, Magnetar Capital LLC, whose economic interests allegedly were adverse to the CDO’s investors, played a significant role in the portfolio selection process with the knowledge of JP Morgan. According to the SEC, while participating in the selection of the investment portfolio, Magnetar shorted $600 million of the assets it helped to select. The SEC also filed a separate complaint against Edward Steffelin, the head of the registered investment advisory firm that the offering documents represented would select the investments in the portfolio. Steffelin has not settled. JPM Settlement Announcement. JPM Compl. Steffelin Compl.