Standard & Poor's said in a report that 2009 is likely to present the greatest pressure on European structured finance collateral performance since the market's inception.
Analysts stated that they expect collateral deterioration to contribute more strongly to negative rating actions.
"Broad economic deterioration could lead to higher corporate insolvencies and unemployment, and, in some cases, continued deterioration in underlying asset values," said Andrew South, surveillance credit analyst.
The report stated that collateral performance could come under significant pressure in most European structured finance asset classes, although higher-rated tranches remain better protected from default, given their greater levels of credit support.
In the year ahead, counterparty problems could weaken ratings in the senior part of a securitization's capital structure if the counterparty is not replaced.
However, collateral deterioration in 2009 is most likely to damage lower-rated notes; senior notes could remain less affected because improvements in transaction structures over time can partially compensate for collateral deterioration over the same period.
In 2009, there is also potential for rating actions as a result of the application of the rating agency's revised methodology or updated quantitative assumptions.