MIS To Widen Debt Review In Wake Of Sub-Prime

by Stewart Douglas

Story link: MIS To Widen Debt Review In Wake Of Sub-Prime

Credit ratings agency Moody’s Investor Services has today announced it is to widen its influential debt review, which will see a ratings cut across over $100 billion worth of outstanding debt in the wake of the sub-prime sector collapse, spelling worse news for banks and investors with exposure to outstanding credit.

The announcement today came off the back of reported ongoing falls in value across the Structured Investment Vehicles sector, which sees banks and investment firms securitize debt for further private investment portfolios, and have realised recurring losses as a result of exposure to sub-prime packaged debts in recent months.

The Structured Investment Vehicles, or SIVs sell debts on to individual investors, and have become heavily involved in sub-prime exposure over the last few years in an attempt to sell profitable investment packages.  However with the over exposure to the sector reaching pandemic proportions, the resultant crash was as devastating as to be expected.

The value of securities linked to the doomed sub-prime sector has fallen strongly as a result of the widespread collapse of the sector, which has led to losses throughout investment and banking industries and has seen many top corporate executives lose their jobs.

The ratings devaluation marks a further shift away from debt caught up in the sub-prime, which dealt in high risk high yield mortgages for lenders with poor credit histories.  With interest rates in the US rising, the result was increasing defaults in the sector and consequently widespread losses in what was previously a profitable sector.

With the value of sub-prime debt now set to fall even further off the back of today’s announcement, it would seem that the investment industry will continue to learn its very expensive lesson in portfolio diversification.