Thursday, 24 July 2014
Last updated 15 hours ago
Sep 28 2011 | 11:59am ET
Magnetar Capital has been linked to another troublesome collateralized debt obligation, one that could produce the first civil charges against a ratings agency over CDO ratings.
The Securities and Exchange Commission last week sent a Wells notice to Standard & Poor's, indicating that it plans an enforcement action against the ratings agency for giving its top score to six tranches of a CDO underwritten by Mizuho Financial Group.
Magnetar was an investor in that CDO, Delphinus CDO 2007-1, ProPublica reports. What's more, Mizuho hired a former Calyon banker who had worked on previous Magnetar-linked CDO deals before creating Delphinus.
As in previous CDO cases, Magnetar has not been accused of any wrongdoing in the Delphinus matter. Nor is it clear what the hedge fund's position in the CDO was, or whether it had a hand in selecting the securities that went into the deal.
S&P gave six tranches of Delphinus its top rating in August of 2007. By the end of the year, they were already downgrading the $1.6 billion CDO, which was rated as junk by the end of 2008.
A U.S. Senate panel earlier this year called Delphinus a "striking example" of what was wrong in the CDO market in 2007, as the subprime mortgage crisis took hold. The panel's report cited e-mails between S&P analysts, in which one questioned the triple-A rating awarded to Delphinus.
"Um… looks like the remaining portion is actually all sub-prime," one wrote."
S&P is the first ratings agency to receive a Wells notice stemming from CDO ratings. Neither of its main competitors, Fitch Ratings and Moody's Investor Services, have received a notice.
The SEC said it may seek disgorgement of fees S&P received for rating Delphinus among other penalties. S&P said it is cooperating with the investigation.
Jul 8 2014 | 10:48am ET
The surge in derivatives regulation is among the most complex challenges facing the financial services industry today. Northern Trust’s Joshua Satten recently spoke with FINalternatives to share insights into the challenges presented by new regulation and explore how the industry is responding. Read more…