A unit of New York Life Insurance Co. issued a $1.5 billion collateralized debt obligation (CDO) named after a Northern sky constellation in April 2007, but the deal burst when it defaulted less than a year later, Bloomberg News reported yesterday. The Corona Borealis CDO, underwritten by Lehman Brothers Holdings Inc., is one of dozens of deals named in the Justice Department’s Feb. 4 lawsuit accusing the world’s largest credit-rating company of deliberately misstating the risks of mortgage bonds as it sought to keep its share of the booming business of repackaging home loans for sale as securities. Eastern Financial Florida Credit Union lost its investment after purchasing a portion of the Corona Borealis CDO, relying in part on Standard & Poor’s assessment of the securities, according to the Justice Department’s complaint filed in federal court in Los Angeles. The U.S. is seeking penalties against S&P and its New York-based parent, McGraw-Hill Cos., that may amount to more than $5 billion, based on losses suffered by federally insured financial institutions.
