Fitch Ratings has placed 41 tranches of Portuguese structured finance transactions on Rating Watch Negative (RWN) following the lowering of Portugal's long-term foreign and local currency issuer default ratings to 'A-' from 'A+' on March 24.
Among the tranches to be downgraded are 36 RMBS, 1 ABS and four structured credit tranches. All other Portuguese RMBS tranches that Fitch rates have a negative outlook.
The rating agency has placed all 'AAA'-rated Portuguese structured finance transactions on RWN with the exception of two SME deals where notes were guaranteed by the European Investment Fund.
To date, the majority of Portuguese offerings have performed well with stable delinquencies and defaults. However, Fitch said that the rising uncertainty regarding the direction of the Portuguese economy, increased risks to policy implementation and rising funding pressure on Portuguese banks that could undermine the securitizations' peformances.
"There are signs that delinquency levels are currently increasing," analysts said. "The future performance of the assets supporting these transactions may be further adversely affected by the changes occurring to the macro-economic environment in which they operate."
Portugal is the latest country to fall as Europe faces a surmounting debt crisis that has already seen the European Union bailout Greece and Ireland as well as a host of structure finance credit rating actions following sovereign downgrades.
Attention has also turned toward Spain, which is also in the grip of a sovereign economic crisis. This week Moody's Investors Service placed on review for possible downgrade the ratings of 35 tranches in 21 Spanish RMBS and 3 Spanish ABS following the downgrades of Spanish financial institutions.
On March 24, Moody's downgraded the senior debt ratings of 30 Spanish financial institutions by one or more notches. The deposit and/or senior debt ratings of five Spanish banks have been downgraded by three or four notches. This rating migration exceeds Moody's assumed two-notch-downgrade for servicers whose ratings were on review at the time of its earlier assessment of operational risk on March 2.
As a result, the rating agency placed on review ratings in transactions with 'Ba'-rated servicers that do not benefit from a rating trigger to appoint a back-up servicer.
"The placement of ratings on review also reflects the insufficiency of liquidity arrangements to support payments on the rated tranches in the event of servicer disruption," analysts said.
The tranches placed under review include ratings on 'Aaa' and 'Aa' tranches from transactions serviced by Caixa Catalunya, Tarragona i Manresa, Banco Pastor, Banco de Valencia and Caja de Ahorros Ontinyent, which are all now rated non-investment grade.