The CDO at the center of the fraud case against Goldman Sachs is known as ABACUS 2007-AC1, and a class of its debt was cut to ‘D’ from ‘CCC-‘ by Standard Poor’s in May 2009.
That cut to ‘D’ might have been the most recent rating action taken on this specific transaction. ASR sister publication Investment Dealers Digest obtained a copy of the downgrade report on Friday.
In that report, which was published on May 13, 2009, S&P said the downgrade of the transaction’s Class A-1 “follows a number of recent write-downs of underlying entities that caused the class A-1 notes to incur a partial principal loss.”
In February 2009, S&P cut the deal’s Class A-2 to ‘D’ from ‘CCC-‘ after write-downs of reference entities in the underlying collateral pool which caused the A-2 note to incur a partial principal loss.
Fitch Ratings, meanwhile, said it did not rate that specific deal, and Moody’s Investors Service did not respond immediately to questions from IDD about the transaction.
The Securities And Exchange Commission (SEC) charged Goldman with fraud when it sold a CDO whose value hinged on the performance of subprime MBS.
According to regulators, Goldman structured and marketed the synthetic CDO without disclosing to investors that a major hedge fund played a role in the portfolio selection process and the fact that the hedge fund had taken a short position against the CDO.
ABACUS 2007-AC1 closed on April 26, 2007. By October 2007, 83% of the RMBS debt in the portfolio had been downgraded and 17% was on negative watch, according to the SEC.
By January 2008, 99% of the portfolio had been downgraded.
