A Dominion Bond Rating Service (DBRS) report released today showed that securitizations have represented a significant share of the capital structure of certain esoteric asset issuers. This makes ABS an important component in the overall financing available to these firms.
DBRS tested the dependence of these originators on securitization by analyzing a sample of the most recent filings of companies in various specialty finance sectors.
For instance, the marine container sector had four companies in the sample whose reliance on asset-backed financing ranged from 15% to 91% of their overall debt and a weighted average reliance on ABS of 71%.
DBRS analysts determined that the decision to pursue securitization as a funding source might be attributed to various considerations such as a company’s debt rating in comparison to the potential rating of an ABS offering, the availability of more low-cost and/or unsecured funding including bank loans, a firm's funding diversification strategy, access to bank warehouse funding, and investor demand for the asset class.
Analysts also noted how performing a credit analysis on these transactions requires the examination of specific operative factors that show the sector’s unique risks. This might be because of the servicing-intensive, long-term nature of many esoteric assets, and might affect the securitization’s overall rating.
The rating agency said that much attention must be addressed to the originator’s existing servicing capabilities and experience aside from the availability and consistency of back-up servicing arrangements with rating criteria.
Also, analysts said that another analytical concern often involves the amount of available historical performance data, whether it is in regard to a specific originator and/or industry.