Ferchi

Although there was no rational or reasonable basis for doing so other than the fact that one approach enabled the CPDO to satisfy the AAA rating quantile and the other approach did not, S&P decided that its base case for modelling and rating the CPDO should be an LTAS of 40 bps for one year and 80 bps for nine years. Although the split between 40 bps and 80 bps was itself arbitrary, the most salient point is that the modelling showed that if the assumed LTAS of 40 bps was extended to two years then, all other assumptions being the same, the CPDO again did not meet the AAA rating quantile. S&P then drew a further arbitrary, irrational and unreasonable distinction between the lower LTAS of 40 bps lasting for one year as opposed to two years, the result of which was that on S&P??s approach the CPDO achieved the AAA rating quantile default rate of 0.728% (which it did not if the lower LTAS of 40 bps continued for two years).