Reputation-wise, credit rating firms were among the worst casualties of the recent financial crisis. Now, structured credit deals that briefly accounted for more than half the ratings business are showing glimmerings of life – but rating firms aren't invited to the party. While an ominous signal for rating companies, the budding tendency may be good news for individual credit risk professionals.
This past summer Credit Suisse reportedly sold an unrated residential mortgage-backed securities deal. And Highland Capital is said to be preparing a corporate loan securitization (CLO) that won't be rated.
Ruminating on what these events may portend, Structured Credit Investor quotes John Uhlein, managing partner of Grenadier Capital: "I expect deals like this will become more prevalent as real money investors begin to re-staff and use internal resources to do their analysis." He describes a "real money" investor as one that would buy a lower-rated tranche (or, I presume, an unrated one) after performing its own due diligence.
That's in contrast to the characteristic bubble-era m.o. of relying on AAA credit ratings, mononoline guarantees and buying credit protection (CDS) on the issuer or guarantor. The latter approach, Uhlein notes, "discouraged active analysis on the investor's part."
If so-called real-money investors with a commitment to understand the deals they buy indeed reappear, that would not only help inoculate the system against the kind of meltdown that ensued in 2007-08. It would also create – or recreate - career opportunities for a new generation of structured credit analysts.
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