Just when you thought that it could not get any worse for those lucky people who stuck money into CDOs, yesterday the S&P made a series of announcements that only serves to add another nail in the coffin for their money.

The S&P has changed the assumptions about how much cash will be recovered by investors in those infamous sub prime bonds when individuals default on their loans. This in turn affects the CDOs that are based upon them (in this case those that have at least 40% in sub prime mortgage backed bonds). The recovery rates for the various tranches were announced as follows:

A or Lower                 Zero
AA                             5%
AAA (Junior)               35%
AAA (Super Senior)     60%

This, as the S&P so rightly point out, will lead to even ...   more »