In a review of 2012 ratings performance, Fitch Ratings said that it proved to be another year in which ratings downgrades blew past upgrades in the arena of global structured finance.
Most of the blame rested on the shoulders of the older vintage residential mortgage-backed (RMBS) transactions from the U.S. This sector accounted for 80% of all downgrades.
Downgrades in global RMBS edged up 8% at the same time that the pool of outstanding ratings shrank by 20%. The combined effect sent the downgrade rate sharply higher. The catalysts were “model changes, adverse selection in older mortgage pools, and the sovereign crisis in Europe.” Spanish RMBS suffered after Fitch applied ratings caps to those deals following the agency’s downgrade of the government.
Impairments — which means movement from a given rating to one in the ‘CCsf’ or below level — did not take place for deals rated triple-A during the year. The impairment rate also remained low across investment-grade bonds in general, at 0.11% in 2012.
While the number of downgrades, and the downgrade rate, is still elevated compared to pre-crisis levels (see chart below), they remain well below the peak in 2009.