Responding to market participants' demand for more precise and granular measures of risk, Fitch Ratings conducted a study of the level of program-wide credit enhancement (PWCE) with a sample of large, diverse multi-seller ABCP programs in the U.S. Using VECTOR CP as the analytical tool, the study suggests that many partially-supported multiseller ABCP programs in the U.S. maintain excess levels of PWCE. This information should be of comfort to investors as it confirms the low level of risk in established U.S. multiseller programs. In addition, multiseller ABCP program sponsors may find the application of VECTOR CP useful, as it can compliment their internal credit scoring and support their risk and regulatory management objectives. A more detailed discussion with respect to the modeling assumptions and results will be presented in a report to be published by end of the month.
Multiseller ABCP programs generally calculate their PWCE levels by applying a fixed percentage against the outstanding amount excluding any "highly rated assets". These percentages typically range between 5% and 10%. However, the collateral risk that multiseller ABCP programs take ties into the underlying asset portfolio, and this risk greatly depends on the distribution of asset type, asset size, and asset rating, while fixed percentages are not reflective of these factors. Given this disconnect, the study's objective was to measure this portfolio risk using VECTOR CP and compare the model's outputs to the actual levels of PWCE using representative programs.