Moody’s Investors Service said that it placed nine securitizations sponsored and serviced by entities within CIT under review for downgrade.
The rating agency said that these transactions would be the most immediately impacted should the company file for bankruptcy.
However, certain factors could mitigate the impact of a CIT bankruptcy on the rated tranches. First, some company subsidiaries and affiliates might not file for bankruptcy or not file at the same time as the parent company. This would allow for servicing to continue.
Second, the equipment securing the leasing deal, while only a small expense for the obligors is important to their business. This reduces the probability of default. Also, the servicing of student loan-backed transactions is done on a standard platform that can easily be transferred.
Finally, even if one or more of the ABS servicing companies were to file and delinquencies were to increase, the deals benefit from their respective structural features and credit enhancement, as well as other terms specific to each asset and securitization transaction.
“However, as our higher ratings must consider low probability scenarios, we are focusing on and evaluating potential risks, including the potential for a sudden increase in delinquencies,” Moody’s analysts said.