Now we know how much ‘AAA’ rated CDOs are really worth

Carina Ltd, a CDO managed by State Street, is being liquidated after the credit quality of its collateral fell below predetermined levels, allowing senior note holders to force a fire-sale of assets. Carina was originally a $1.5bn CDO when it was launched in September 2006, and is the first CDO to begin unwinding since the credit crunch began. The rating on an AAA rated portion of the CDO was downgraded 18 notches by S&P, taking the rating to CCC-.

S&P has been informed of the default of 13 other CDOs. The dumping of assets on the market should see prices in all forms of structured credit continue to spiral downwards, which will inevitably cause spreads in the conventional corporate bond and high yield bond market to widen in sympathy.