Due to what it calls deteriorating weighted average credit quality, along with a volatile and falling net asset value, Moodys has downgraded its rating for the Lehman Brothers Enhanced Libor Fund from Aaa/MR3 to A/MR5. Moodys said the rating would remain on review for further downgrade, due to its holdings in securities backed by residential mortgages and credit card payments.
Earlier, on Sept. 18, Moodys placed all Lehman Brothers funds on review due to concerns over the parent company, which filed for bankruptcy three days prior.
Moodys said it expects the portfolios market risk to remain elevated due to market illiquidity and worsening fundamental performance in most asset classes in the funds underlying portfolio.
Moodys explained that funds rated A are considered to be medium- to upper-grade investment vehicles, while MR refers to mutual funds market risk, i.e. the volatility of their NAV as caused by holdings, interest rate risk, prepayment and extension risk, liquidity and concentration risks, currency risk and derivatives risk. Funds rated MR5 are judged to have very high sensitivity to changing interest rates and other market conditions.