A change to the Spanish bankruptcy law means that credit will no longer be given to pledges of assets securing future claims in Spanish ABS deals unless they are publicly registered in Spain before a pledgor insolvency, according to Fitch Ratings.
The rating agency said that the change mainly affects auto lease and auto loan ABS offerings that have residual value (RV) exposure.
Transactions where pledges of non-real property assets offer protection for revolving credit lines can also be affected, even though Fitch does not presently rate any of these deals in Spain.
"We believe that the change made by the amendment is the unintended result of a mistake when the amendment was drafted," Fitch analysts said. "The amendment to Spain's insolvency law was intended to clear up an uncertain area regarding pledges over future claims on insolvency of the pledgor. But instead of referring to pledges over future claims, the amendment refers to pledges securing future claims."
Until a clarification or alternative system is offered, when Fitch rates Spanish auto lease and auto loan ABS offerings with RV exposure, it will assume that the issuer SPV will not have a priority security interest in the proceeds from selling the vehicles when the lease term ends.
The rating agency said it also plans to assign unsecured recovery rates to the future credit rights in the portfolio.