OREANDA-NEWS. Fitch Ratings has updated its global rating criteria for collateralised loan obligations (CLOs) and corporate collateralised debt obligations (CDOs). The report replaces the "Global Rating Criteria for Corporate CDOs", dated 9 June 2016.

The updates include primarily (i) the removal of explicit reference to Fitch's CDS-implied ratings, (ii) additional details on Fitch's approach to constructing stress portfolios for middle market and broadly syndicated CLO portfolios, and (iii) additional details on Fitch's approach to rating surveillance under the criteria.

Fitch's CDS-implied ratings were used to identify adverse selection in corporate investment-grade synthetic arbitrage CDOs. Fitch has not rated such a structure since 2008. Therefore the agency decided to remove the explicit reference to Fitch CDS - implied ratings in its methodology.

The agency provided additional details to the treatment of 'CCC' buckets, industry limits and asset repayment assumptions when constructing a reasonable stress portfolio based on covenants and/or the initial portfolio.

Finally Fitch provided a detailed description on when and how cash flow analysis is conducted for surveillance. The agency would always perform cash flow analysis for transactions for which a rating change may be considered. Fitch may decide not to perform cash flow analysis for a transaction if, for example, the actual portfolio's credit quality is better or in line with the initial stress portfolio, all over-collateralisation tests are passing and the transaction is still in the reinvestment period and has not deleveraged.

Fitch expects the criteria changes to have no impact on the ratings for leveraged loan CLOs since no material changes were made to our methodology.