While the U.S. and global banking sectors continue to engineer solutions to contain the fallout from the regional bank failures, asset-backed securities analysts say that limited exposure and structural features in transactions are deflecting any serious impact.
True enough, banks like Silicon Valley Bank held Treasury and agency mortgage-backed securities (MBS) on their books, say analysts from Fitch Ratings in a note on Monday morning. In cases where Fitch took negative rating actions on regional banks, however, they serve as transaction counterparties for only a limited number of U.S. RMBS transactions.
Case in point is First Republic Bank, where a group of the country's 11 largest banks agreed to put together a $30 billion liquidity rescue package. Fitch did note that FRB is an originator and servicer on several dozen U.S. residential MBS deals. The deals have strong underlying collateral characteristics and significant credit enhancement growth from ongoing deleveraging in the notes, Fitch said.
"FRB's downgrade to below investment grade will affect our rating treatment of FRB as a representation and warranty provider, but is unlikely to have any impact on the outstanding RMBS ratings," the rating agency said.
Fitch recently downgraded First Republic's IDR rating to 'BB' from 'A-', with the rating on Rating Watch Negative.
First Republic is a servicer on several dozen RMBS deals, Fitch says, and it sees minimal risks from commigling and payment interruptions. All of the transactions have structural reinforcements in place, such as a master servicer, a backup servicer or replacement language in line with its counterparty criteria, the rating agency said.
Another regional bank, PacWest Bancorp, is directly linked to PacWest Reference Notes, Series 2022-01, where interest payments are PacWest's unsecured debt obligations. Fitch did put the series 2022-1 notes on rating watch negative, but that was because the ratings were capped at the bank's ratings. In terms of performance, the notes have been repaying investors in line with expectations, Fitch said.
