CDOs, one of the more complex and controversial investments that morphed into what we now call the credit crisis, are making a comeback. According to Bloomberg, Morgan Stanley (MS) has plans to turn downgraded loan CDO into triple-A bonds.
Morgan Stanley plans to repackage a downgraded collateralized debt obligation backed by leveraged loans into new securities with AAA ratings in the first transaction of its kind, said two people familiar with the sale.
Morgan Stanley is selling $87.1 million of securities that it expects to receive top AAA ratings and $42.9 million of notes graded Baa2, the second-lowest investment grade by Moody’s Investors Service, according to marketing documents obtained by Bloomberg News.
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Two years after the credit markets began to seize up, costing the world’s biggest financial institutions $1.47 trillion in writedowns and losses, banks are again taking so- called structured finance securities and turning them into new debt investments with top credit ratings.
The Morgan Stanley deal is the first to involve CDOs of loans. But Bloomberg notes banks have been doing the same with commercial MBSs in recent weeks.
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I hope we don’t end up bailing these out, too. These guys don’t learn, do they?