S&P Considering Ratings that Would Forecast RMBS Recoveries

Standard & Poor's is considering offering "stressed recovery ratings" for all senior tranches of certain residential mortgage-backed securities that originally received S&P's top rating but subsequently saw severe downgrades. The new ratings would be offered on U.S. prime, alternative-A and subprime RMBS that originally carried a AAA rating but later slipped to a speculative grade rating of BB+ or below. They would be designed to complement a security's current credit rating by providing S&P's opinion of the projected principal recovery on a security if it defaults. The rating agency is currently planning to express this as a percentage of the security's initial par amount but is seeking input on, among other things, whether market participants might want to see this expressed in another way.