Five Things You Need to Know: Carina CD-Oh-No; What Is a CDO?; Down In the Tranches; Dominoes; Capitulation vs. Kickoff

By Kevin Depew  NOV 09, 2007 10:51 AM

What you need to know (and what it means)!



Kevin Depew's daily Five Things You Need to Know to stay ahead of the pack on Wall Street:

1.  Carina:  CD-Oh-No

Standard & Poor's said a collateralized debt obligation managed by State Street (STT) began liquidating its assets, prompting the ratings firm to slice the investment vehicle's ratings as much as 18 levels, according to Bloomberg.

2.  What Is a CDO?

Ok, something called Carina CDO Ltd. has been downgraded by S&P and may begin liquidating assets, but what does this mean for me?   

3.  Down In the Tranches

What has happened is that the most senior tranch of the Carina CDO (the highest rated tranch) was downgraded two levels from AAA to BB, two levels below investment grade, while another AAA class was downgraded an astonishing 18 levels to CCC-. 

4.  Dominoes

The liquidation of the Carina CDO was one of the issues Citigroup (C) was concerned about in their conference call this week; the point at which holders of senior notes say they are no longer willing to risk the fact that the current cash flows will continue on without impairment. 

5.  Capitulation vs. Kickoff

For equity market participants liquidation events are typically hallmarks of capitulation.  In credit markets liquidation events are more often kickoffs, triggers to other liquidation events. 

No positions in stocks mentioned.

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