105 This table reports logit regressions of the underlying complexity components on number of ratings controlled for deal-level characteristics, issuer characteristics and market conditions. We use the sample of CLO securities issued in November 1996 up to May 2013, the year in which multiple ratings became mandatory in Europe. The sample is based on securities that received a rating from Moody’s and/or S&P as reported on Bloomberg. The dependent variable is the dichotomous variable ‘Number of Ratings’ that equals 1 if, at issuance, a security had two ratings and zero if it had only one rating of Moody’s (Panel A) or S&P (Panel B). ‘Tranche Count’ stands for the total number of tranches in the CLO of which the security is a part of, ‘Log Tranche Size’ is the natural logarithm of the face value of the security at issuance. ‘Capital Allocation' represents the level of internal credit enhancement supporting such a security within a CLO, measured as the ratio of all tranches subordinated to the tranche in question divided by the total face value of the CLO. ‘Post’ is introduced in columns (5), (6), (7), and (8) and used as an indicator interaction term that equals 1 if a security is issued after 2007. All other independent variables are defined in Table 3.2. White (1980) heteroskedasticity-adjusted t-statistics in parentheses and (*), (**), (***) denote significance levels of 10%, 5% and 1%, respectively. Table 3.3: Logit regressions of CLO complexity characteristics on the number of credit ratings at issuance for Moody’s and S&P. Panel A: Dependent Variable: Dual Rating and Moody's Exclusively Sample (1) (2) (3) (4) (5) (6) (7) (8) Complexity Indicators Tranche Count 0.08* ** 0.03* ** 0.12 *** 0.05* ** 0.08 *** 0.08 *** 0.07 *** (6.11) (2.74) (9.30) (3.79) (5.66) (5.84) (5.05) Tranche Count*Post (60.2.296)*** Log Tranche Size 0.30* ** 0.20* ** 0.37 *** 0.33* ** 0.46 *** 0.30 *** 0.31 *** (7.09) (5.46) (8.74) (7.75) (9.06) (7.19) (7.26) Log Tranche Size*Post (-8-0.9.523)*** Capital Allocation 2.61* ** 3.09* ** 3.05* ** 2.60* ** 2.87 *** 3.23 *** 2.68 *** (8.64) (10.1) (9.50) (8.51) (8.73) (8.41) (8.54) Capital Allocation*Post (-3-1.7.955)*** Control Variables Euro Market -1.48*** -1.44*** -1.43*** -1.36*** -1.42*** -1.47*** -1.51*** -1.30*** (-18.4) (-18.2) (-17.8) (-17.2) (-17.5) (-18.1) (-18.7) (-15.1) Euro Market*Post (-4-1.7.307)*** Top Ten Issuer -0.25*** -0.27*** -0.24*** -0.28*** -0.29*** -0.27*** -0.26*** -0.27*** (-3.16) (-3.38) (-3.08) (-3.52) (-3.57) (-3.42) (-3.24) (-3.31) Log Transaction Value 0.05 0.18* ** 0.26* ** -0.08 0.06 0.10 0.06 0.10 (0.71) (2.98) (4.64) (-1.36) (0.84) (1.55) (0.96) (1.53) Year effects Y Y Y Y Y Y Y Y Credit rating effects Y Y Y Y Y Y Y Y Observations 7,148 7,148 7,158 7,148 7,148 7,148 7,148 7,148 R2 0.241 0.235 0.229 0.223 0.248 0.254 0.244 0.246 Chapter 3 - Security Design and Credit Rating Risk
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