More Ratings Pain in Store for Peripheral Euro ABS

Register now

Moody’s Investors Service today placed 60 tranches of securitizations on review for downgrade in the economically beleaguered countries of Spain, Italy and Ireland. The potential downgrades will “generally be around three notches,” the agency said.

The move comes after the agency tweaked its methodology for incorporating a country’s risk into the rating of structured deals backed by assets domiciled in that country.

ASR predicted that it would be peripheral countries of Europe that would be hit hardest by this methodology change, announced March 12.

The 60 affected tranches are contained in 41 residential mortgage backed securities (RMBS) and 7 asset-backed securities (ABS). Under the new methodology, the credit enhancement in these deals may be insufficient to maintain the current ratings of these transactions. The agency said the new approach is also being factored into the ratings reviews that Moody’s began last year for ABS and MBS in Ireland, Portugal, Italy and Spain.

“Insufficient credit enhancement, as compared with country and asset-class specific minimum levels, drove these reviews,” the agency added.

Downgrades stemming from Moody’s tougher approach to transactions in troubled countries will mostly affect mezzanine and junior classes in such ABS sectors as SME loans, leases, auto loans, and consumer assets, as well as residential mortgage backeds. It expects to wrap up the reviews within six months.

For reprint and licensing requests for this article, click here.