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Fitch expects to call out competitors on ABS ratings more often

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Look for Fitch Ratings to publish more unsolicited commentary on structured finance transactions it was not asked to rate but feels are being treated too favorably by some of its rivals.

The rating agency warned Monday that “late-cycle credit behavior” is allowing less established issuers to rely on the securitization market more heavily for funding. These issuers are sometimes obtaining top credit ratings more easily than they might have in the past.

Fitch is already more outspoken than most of its rivals. In recent years, it has published 25 unsolicited deal commentaries when the agency believed there was investor interest and it had a materially different credit opinion on a transaction or issuance from other rating agencies. It has also issued 17 comments sharing its less favorable view on entire sectors of the structured finance industry.

In recent months, however, it has stepped up the pace, issuing four deal-specific and six sectorwide unsolicited commentaries. In September, it issued a report critical of a U.S. collateralized loan obligation with unusually high exposure to a single sector, technology; the rating agency did not feel that anything in the deal mitigated this concentration risk.

Also in August, it warned that the entrance of newer rating agencies is allowing some issuers of new U.S. residential mortgage-backed securities to shop around for more favorable ratings, resulting in more deals with “split” ratings from different shops.

Many of the other unsolicited commentaries were on transactions issued outside the U.S. or non-U.S. sectors.

"We felt now was a good time to reiterate our position on unsolicited commentaries with lesser-established issuers and sectors relying on securitization for funding more heavily and 'AAA' ratings coming more easily in these areas,” Marjan van der Weijden, Fitch's global head of structured finance, said in a report published Monday.

“It is now more imperative than ever that investors have access to our credit view whether we are asked to rate a transaction or not."

What Fitch considers to be a material difference in credit opinion will vary, but it may include where it does not think the senior tranche of securities being issued merits an AAA, and/or where it limits the rating to a level at least one rating category lower than other ratings in that sector (or where a possible rating could be one category higher).

As it has done in the past, Fitch aims to issue unsolicited commentaries before investors commit to purchase a security. "We realize this is a source of consternation for some issuers, but investors clearly believe that the value of the unsolicited commentary is maximized before a transaction prices," said van der Weijden.

To date, Fitch has not assigned new ratings to any structured finance transactions on an unsolicited basis, but the agency may still pursue this approach in a few cases, if it has sufficient information and can assign the rating on a timely basis. It would apply the same approach and timing as for an unsolicited transaction commentary.

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