Fitch Ratings announced that it has started a review of its counterparty criteria for global structured finance transactions.

Recent market turmoil — including the insolvency of Lehman Brothers, government  seizure  or  receivership  of  the main Icelandic banks,  as  well  as  a  number of  instances of government support for distressed global financial  institutions — has highlighted the need to review the ratings on counterparty risk exposures, the rating agency said.
In some cases, government  intervention has either prevented the extent  of  near-term adverse rating action for financial institutions  that  may  otherwise  have  seen  multiple category rating action  or   default. In these instances, structured finance transactions affected have not generally seen adverse rating action, despite  the heightened risk posed by counterparty exposure, Fitch said.
The review will look will apply to the structured finance and structured credit transactions the agency rates globally.
One of the changes to the existing rating criteria is to raise the threshold of current issuer default rating-based triggers. Another option is to either replace  or  combine  issuer default rating-based triggers with support rating floors that are based on Fitch's opinion  of  “a  sovereign's propensity and ability to support a bank.” 

Also under consideration is a plan to create criteria with a more detailed approach  to categorizing the type and extent of counterparty exposure. This could include a focus on transaction specific mitigants of counterparty exposure, as well as the institution  acting  as counterparty. 
The new rating criteria is expected to be published by December, initially in the form of an exposure draft.
Current criteria will continue to be used for both existing and new transactions until the new criteria is implemented.

Subscribe Now

Access to a full range of industry content, analysis and expert commentary.

30-Day Free Trial

No credit card required. Access coverage of the securitization marketplace, including breaking news updated throughout the day.