Moody's Investors Service published a special comment today discussing the implications of a possible bankruptcy of the CIT Group Inc. on sixteen ABS transactions where CIT, through its subsidiaries, acts as the servicer, master servicer, administrator, or servicing administrator.
The special comment describes the risks associated with servicing disruption, presents a framework which the agency employs to evaluate the likelihood and extent of servicing disruption in the affected transactions, and summarizes Moody’s current view of strengths and concerns around servicing disruption risk in CIT-serviced ABS.
On July 15, nine of these securitizations were placed under review for possible downgrade in connection with the downgrade of the company's long-term rating. The review for downgrade reflected the increased risk of a near-term bankruptcy filing by CIT, based on its current rating of ‘Ca’, and the related servicer disruption risk.
Moody’s said that the bankruptcy of a servicer may disrupt its operations, with possibly detrimental effects on serviced ABS. For example, the servicer's employees may lack proper motivation or seek employment elsewhere, disrupting normal workflow. Collection activities may stall. Also, access to the funds that are available in trust accounts may be delayed, and the available funds may not be distributed to the noteholders in a timely fashion if the servicer is unable to instruct the trustees to make the payment.