Fitch Ratings took a swipe at its peers, saying some recent Mexican equipment lease securitizations they rated ‘AAA’ merit no more than a single ‘A’ rating.
A report published today cites three concerns: limited sponsor strength; revolving structures that are susceptible to operational risks and origination policies; and excessive concentrations of obligors, relative to initial credit enhancement levels.
Fitch does currently does not rate any Mexican equipment lease securitizations. Its criteria allows for such deals to be rated up to 'AAA.' However the ratings agency said that the combination of these risks would have limited its ratings on some recent transactions to 'A' through 'AA' or lower.
“In Fitch's view, it is difficult to completely de-link sponsor strength from the transaction rating for small, low credit quality sponsors that utilize ABS as a primary funding source to fuel aggressive growth strategies, especially when a large majority of the balance sheet is transferred to a securitization,” the ratings agency said.
“Secondly, transactions structured with pre-funding or revolving periods present additional risks particularly for sponsors with a limited track record. Down cycles can present unexpected pressure which can negatively influence origination policies and corporate priorities, and potentially contaminate the revolving loan portfolio.”
Lastly, it said, “obligor concentration risks have not been adequately addressed in several recently-closed deals, evidenced in transactions that have a relatively high cumulative concentration in unknown obligors with limited initial credit enhancement.”