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NEW YORK CITY-Standard and Poor’s, the securities rating agency based here, assigns a default rating to a security if it misses so much as a dollar of scheduled interest payments or if it suffers a loss at the transaction level that fully erodes protection for the security and causes a principal loss. In either case, credit surveillance is halted and the security is forever after unable to cure its default.

Nonetheless, a defaulted structured finance security that is supported by the cash flow of the underlying assets, may receive cash flow from both interest and principal, according to a new S&P report, “Life After Death: Recoveries of Structured Finance Securities,” by Joseph Hu. And, unlike a typical defaulted security such as a corporate bond, he writes that the cash flow is often substantial.

The report notes that since 1988 there have been 83 residential mortgage-backed securities that have defaulted as have 14 CMBS and 19 asset-based securities. Their recoveries averaged 61%, 66% and 29%, respectively.

The complete report is available to subscribers at www.ratingsdirect.com.

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