In a just-released report, Fitch Ratings said that one-in-three rating proposals for new structured finance transactions need considerable changes before these offerings can be rated.

According to a release from the agency, since  launching its Transaction Filtering Committees (TFCs) in 2009, it has  gotten  849 preliminary SF rating proposals. The agency said that 31.5% of these preliminary deals had substantial credit or structural issues that had to be addressed before the rating process can start. Additionally, the rating agency has also rejected nearly one in 10 proposals outright, after designating them as unrateable.

"Transaction Filtering Committees have helped strengthen the rating process and  improved the quality of the structured finance transactions that Fitch ultimately  assigns ratings to, which can only serve to benefit investors," said Ian Linnell, global head of structured finance and covered bonds for Fitch.

The rating agency offered a detailed analysis of its filtering committee results. In total, Fitch  has classified 8.7% of deals as 'Red' or unrateable. It has also designated the 31.5%  of deals previously mentioned as 'Amber'. This means  that the deal requires specific issues to be addressed if the rating process is to continue.

According to Fitch, these figures are actually conservative as they exclude deals that were  declined  by  the agency at a very early stage because of specific credit or criteria issues.

The results are broken down by group — RMBS, ABS, CMBS,  and  structured  credit. They are also divided  by region — North America, EMEA, Latin America,  and  APAC. Fitch also discusses the rejection rates by group and looks at the quarterly rejection rates.

Irrespective of the outcome of a TFC, Fitch will not automatically rate the deal.  For instance, issues raised for 'Amber' transactions may prove ultimately  insoluble.  In  fact,  only a quarter of such transactions were ultimately  assigned a rating. Even for 'Green' transactions, only 57% were eventually assigned a rating often due to new issues emerging that were not highlighted during Fitch's TFC.

"The Transaction  Filtering  Committee  process  provides  early  and definitive feedback  to  transaction  parties  while  helping  to  enhance  the global consistency  of  Fitch's analytical decision making," said Stuart Jennings, group credit officer for global structured finance for Fitch.

TFCs comprise senior credit members from at least two ratings teams and at least  one  independent  credit  officer.  The TFC  chairperson must be a managing  director  from a different rating group from that which received the proposal. 

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