Morgan Stanley’s “AAA” CDO

Bloomberg quotes R&R’s Sylvain Raynes on Morgan Stanley’s plans to repackage a downgraded collateralized debt obligation into new securities with AA ratings, the first transaction of its kind:

“A lot of banks and insurers ‘cannot buy anything but AAA,’ said Sylvain Raynes, a principal at R&R Consulting in New York and co-author of ‘Elements of Structured Finance,’ which is due to be published in November by Oxford University Press. ‘You’re manufacturing AAA out of not AAA, therefore allowing those people who have AAA written on their forehead to buy.'”

Read the full article, “Morgan Stanley Plans to Turn Downgraded Loan CDO Into AAA Bonds,”Bloomberg, July 8, 2009