Over the next 12 to 18 months, Europe, Middle East and Africa (EMEA) region can expect stable and negative performance of its major structured finance asset classes, Moodys Investor Service said in a report published today.
The ratings agency said that since January 2008 it has observed a move towards negative from stable/negative for asset classes such as U.K. prime residential RMBS, Spanish consumer loans and South African autos.
In addition, German CMBS have moved to stable/negative, compared with Moodys stable outlook back in February.
In the current juncture in the economic cycle, Moodys outlooks for the performance of major asset classes in EMEA structured finance range from stable to negative, but are tilted towards negative overall, says Nitesh Shah, a Moodys economist and co-author of the report. A common theme across EMEA is the slowing economic growth combined with rising inflation, which will have a different impact across asset classes and jurisdictions. For most asset classes, Moodys expects performance to remain within current assumptions, although there may be some specific segments and some outlier transactions that will see rating actions.
The outlook for U.K. securitization is negative. However, Moodys considers that any potential deterioration for more recent originations of prime RMBS will be mitigated by cross-vintage seasoning, particularly for master trusts. In nonconforming RMBS, older vintages (pre-2006) will benefit from seasoning and prior house price growth, but newer vintages (2006/2007) will face increased negative rating pressure, particularly for mezzanine and junior tranches. In some transactions, more senior ratings may be affected.
Moodys reported that it also expected the newer vintage Spanish structured finance transactions across all asset classes to potentially face some negative rating pressure over the coming months. This resulted from an expected fall in house prices, which will have negative effect on wealth effect and affect consumer confidence.