"Variable Leveraged Super Senior Certificates" Spell Trouble For Investors

Derivative investments are popular, but should investors purchase them?

In less than a month, a Triple A rated security, issued by Foraois Funding Limited, was downgraded to junk. Why? Moody's cited "the rapid deterioration of the current market value of the reference portfolio."

What did the portfolio hold? Good question! Moody's states that it was "comprised of a variety of structured finance securities", and, apparently, because these securities were "super senior" they would not be exposed to early losses from the underlying securities. But losses mounted nonetheless.

Be careful!