In a report released today, Moody’s Investors Service analysts discuss their methodology for the rating of consumer loan ABS transactions and provide their outlook on the securitization markets around the globe.
The rating agency stated that the newly released methodology will have no impact on any of its existing rated transactions.
The Moody’s report details the five main steps of the ratings process. The agency takes into consideration the structure of a typical consumer loan securitization and its potential effect on the transaction's credit enhancement levels. It also summarizes the main product types and loan characteristics of these offerings.
The rating firm also focuses on a quantitative analysis conducted by its analysts, which is used to establish the ratings. The firm also examines and takes into account the legal risks of the consumer loan ABS, particularly concerning potential uncertainty and rating volatility.
An update on recent consumer loan ABS activity was also included in the report. Analysts said that transactions had a moderately stable rating performance over the past year.
This positive news happened despite the continuing performance deterioration of underlying EMEA assets, which suffered a 1.0% increase in defaults from April 2010 to 4.0% in the same month this year, according to Moody’s default index. The firm believes the majority of the increased defaults occurred in Spain.
Similarly, the Moody’s loss index also rose to 1.3% in April 2011, up from 1.1% in the same month last year. However, the report stated that a large part of this increase probably occurred in 2010.
GDP growth continues to be weak across the main countries of the EMEA consumer loan ABS index, according to Moody’s, with growth expectations for Italy and Spain in 2011 at only 0.9% and 0.7%, respectively. Moody’s also expects Portugal and Greece to remain in recession until at least 2011.
Based on this information, the firm believes that unemployment will not only fail to decline in the near future among these countries, but it will likely increase instead.
Conversely, Moody’s reported a solid outlook on the performance of Latin American consumer loan ABS, with generally steady GDP growth and the maintenance of low unemployment levels.
Nonetheless, the rating agency warned of the possibility that credit performance for borrowers could weaken as delinquencies rise in Argentina if inflation continues to exist or increase in the country over the coming years.