Upgrades might be in store for some Russian residential mortgage-backed securities (RMBS) thanks to recently enacted amendments to the country’s MBS law, according to a request-for-comment paper released today by Moody’s Investors Service.
The agency said that the amendments prohibit voluntary issuer self-liquidation as long as bonds remain outstanding, a risk that had been baked into the agency’s ratings of onshore Russian deals. Now that it’s no longer possible, Moody’s said it could lift some RMBS transactions in the country by one or two notches. The upgrades will not benefit all deals due to operational risks and linkages to the originators.
But the change is indeed a significant one.
“[While] the prohibition…does not completely eliminate the risk of the liquidation of the [issuing entity] upon breaching the minimum net asset ratio, when taken into consideration with other relevant factors, and in particular, that the MBS law considers the state of the mortgage collateral…as the determining indicator for assessing the proper performance of the [issuing entity’s] obligations, we view the likelihood of this liquidation scenario to be sufficiency remote as to have no rating significance,” Moody’s said.