Goldman Pays Junior CDOs Before ‘Junk’ Senior Classes

[AllentownJake]

Nov. 12 (Bloomberg) -- Goldman Sachs Group Inc. paid off at face value some junior-ranking slices of two collateralized debt obligations at the potential expense of more-senior classes that now are likely to default, according to Fitch Ratings.

Goldman Sachs, the most-profitable securities firm, applied its “sole discretion” to ignore standard payment priority and use cash in reserve accounts for the Abacus 2006-13 and Abacus 2006-17 CDOs to retire lower-ranked notes, Fitch said yesterday in separate statements.

The moves are unusual in that the most senior creditors are typically the first in line to get paid. Fitch analyst Karen Trebach said the use of reserve funds may help cause or add to losses for holders of the CDO’s remaining classes.

“We are not aware of the use of this feature in other transactions we rate,” Trebach said in a telephone interview.
http://www.bloomberg.com/apps/news?pid=20601087&sid=a_NUiTt__oI4&pos=4

[lurky]

1. So who owns the "junior" slices and who

owns the "senior" slices? It sounds like whoever owns the senior slices is about to get the big Goldman shaft. I'm guessing the taxpayer is going to be on the hook for it either directly or indirectly...