Over 80% of 'Aaa'-rated European RMBS and ABS have maintained their ratings throughout the crisis, spanning from May 2007 to May 2011, according to a new report by Moody’s Investors Service.
Moody’s analysts listed Dutch RMBS, U.K. prime RMBS, U.K. credit card ABS, and German auto ABS as having the greatest rating stability during this time period as a result of stronger relative macroeconomic conditions on a national level and robust transaction structures.
However, not all European sectors enjoyed such resilience as Spanish RMBS, Spanish consumer loan ABS, and U.K. nonconforming RMBS all experienced sharp drops as a result of deteriorating macroeconomic conditions and exposure to the real estate sector, according to the report.
The peripheral European ABS and RMBS markets were also negatively impacted as senior ratings on deals from Greece, Portugal, and Ireland suffered.
Moody’s analysts said this is due to both ongoing sovereign crises as well as rising operational risks resulting from banking crises and resulting counterparty downgrades.
The report revealed that transactions that closed in 2007 and therefore were originated at the real estate market peak, had the worst rating movement of all European sectors.
Also during this period, no 'Aaa'-rated security experienced any principal loss and only 1.5% of 'Aaa'-rated were downgraded to speculative grade.
Moody’s reaffirmed the major factors for strong rating performance as obligators operating in relatively less impaired economic environments; low household leverage levels; tighter underwriting; and well functioning structural supports such as robust hedging arrangements.