Weighted Average Rating Factor - WARF


DEFINITION of 'Weighted Average Rating Factor - WARF'

A measure that is used by credit rating companies to determine the credit quality of a portfolio. This measure allows rating companies to look at a portfolio as a single security, and assign it a single rating.WARFs are most often calculated by rating companies for collateralized debt obligations (CDOs).

BREAKING DOWN 'Weighted Average Rating Factor - WARF'

To calculate the WARF on a CDO the rating agencies must first calculate the rating factor for each instrument (or trading asset) underlying the CDO. Once this is done, a weighted average of the factors is taken based on the size of the underlying instruments. When the WARF is combined with the amortization profile of the CDO portfolio you can determine the chance of default on the pool on investments.

  1. Amortization

    1. The paying off of debt in regular installments over a period ...
  2. Collateralized Debt Obligation ...

    An investment-grade security backed by a pool of bonds, loans ...
  3. Credit Derivative

    Privately held negotiable bilateral contracts that allow users ...
  4. Credit

    1. A contractual agreement in which a borrower receives something ...
  5. Synthetic CDO

    A form of collateralized debt obligation (CDO) that invests in ...
  6. Tranches

    A piece, portion or slice of a deal or structured financing. ...
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