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Structured Finance Will Demonstrate Resilience During 2003
RiskCenter.com (January 30, 2003)
Fitch Ratings believes that the global structured finance market will demonstrate resilience overall, although performance characteristics of individual asset types may vary widely.
Yesterday, Fitch published its outlook for 2003 and a review of 2002, including analyses broken down by individual sector.
'In 2002, the U.S. structured finance market had some of its best and worst performance. This contrast reflects the divergent trend between the U.S. residential mortgage-backed securities and almost all other structured finance sectors,' said Claire Mezzanotte, Managing Director, Fitch Ratings. 'The outlooks for 2003 span the entire range, from mostly stable for transactions backed by high quality consumer assets, mostly negative for securities backed by commercial finance assets and stable to positive for transactions backed by prime residential- and commercial-mortgage backed securities.'
According to the new report, the structured finance market demonstrated uncharacteristic volatility during 2002, as U.S. structured finance ratings showed by number of tranches, 5.4% more upgrades than downgrades. However, upgrades have been largely concentrated in the U.S. prime residential mortgage-backed securities (RMBS) sector, which has enjoyed an unprecedented favorable interest rate environment and price appreciation, features that will be less beneficial for future rating actions. In the U.S. , net positive rating actions in RMBS and commercial mortgage-backed securities (CMBS) outnumbered the net negative rating actions in asset-backed securities (ABS) and collateralized debt obligations (CDOs). 'Ratings in Europe experienced 2.0% more negative than positive rating actions, with negative rating actions in the whole business, emerging market and CDO sectors exceeding positive rating actions in the traditional ABS, RMBS, and CMBS sectors' said Kimberly Slawek, Group Managing Director, Fitch Ratings.
The European structured finance market shares similar outlooks, with the exception of transactions backed by subprime assets, although its upgrade and downgrade rating performance has been less volatile due to the lack of transaction seasoning. The report includes an outlook for CDOs, noting that performance for cash and synthetic structures composed of corporate assets is expected to reflect the continuing negative environment for defaults and recoveries, albeit with some stabilization as corporate defaults trend downward. Transactions backed by structured finance assets and leveraged loans are expected to fare better.
The full report titled 'Global Structured Finance: 2003 and 2002 Review' can be viewed at www.riskcenter.com in the Fitch Ratings Reports box.