Mortgage-backed CDOs’ value falls

U.S. mortgage assets in complex pools of securities have lost so much value that the least-risky classes of the securities may be worth as little as 20 cents on the dollar in a liquidation, Barclays analysts said.

About 20% to 30% of principal would be recovered by holders of the “super senior” portions of so-called collateralized debt obligations that contain mortgage bonds and other holdings initially assigned low investment-grade ratings, the analysts said in a report issued Thursday. The senior-most classes of CDOs containing highly rated asset-backed bonds would recoup 30% to 65% of the amount invested, the bank and asset management firm said.

Determining accurate prices for the collateral is difficult, the New York-based analysts said. “We believe our methodology is analytically rigorous and represents a good jumping-off point,” they wrote.

Recent write-downs at the world’s biggest financial companies, including Citigroup Inc., Merrill Lynch & Co. and Morgan Stanley, were partly caused by declines on super-senior pieces of CDOs amid a global credit-market seizure.

CDOs, which repackage pools of assets into new debt with varying layers of risks, typically can hold their collateral until maturity. But asset managers have announced plans to liquidate two CDOs after the credit ratings on their holdings were reduced.