In a conference call last week, Moody's Investors Service said that mutual fund-fee securitizations will be the next sector to get hit with ratings actions and deteriorating credit as a result of the new economic reality following the events of Sept. 11.

Like most other sectors that the rating agencies are watching closely, 12b-1 fee and other distribution-finance securitizations were experiencing volatility before the WTC attacks, but that volatility has been intensified by the severe economic downturn. Of course, deals at highest risk are those heavily exposed to equity valuations, which tumbled when the market reopened on Sept. 17.

Several of those deals had been hit with ratings actions earlier in the year, as the stock market has been struggling through the economic slowdown that began almost a year ago.

Planes and anything subprime

As of last week, all three rating agencies had either taken action on, or named aircraft structured finance transactions as public enemy No. 1, from a credit perspective. Fitch has gone as far as to put all of its rated aircraft structured finance deals, including the pooled lease deals, the EETCs, and CDOs with significant exposure to the airline industry, on watch with negative implications.

Moody's has so far downgraded the corporate ratings on all the major carriers, in addition to putting notes from Triton Aviation's June 2000 aircraft lease deal, as well as notes from Embarcadero Aircraft Securitization, on ratings watch negative.

The agencies are also closely watching the fleet rental car sector, which, due to decreased business activity and cancelled purchase orders, might be postponing scheduled ABS issuance. From a credit perspective, Moody's warns that ABS from Budget Rent-A-Car and ABCP from ANC Rental Corp. might be among the first to experience deterioration.

Other sectors include timeshare ABS and subprime consumer-related sectors, such as subprime mortgage, autos and credit cards.

Meanwhile, Moody's confirmed that a temporary, non-credit-related spike in delinquencies is being seen in consumer-related assets such as credit cards, as shell-shocked consumers have been tossed out of their routines, missing payments. Because many credit card companies are waiving late fees, portfolio yields are expected to fall slightly in the near term.


impact on SF

As reported last week, ABS deals that are guaranteed by insurance companies which were affected by the terrorist attacks are being watched, and the extent of the secondhand impact will largely depend on how much the deal's rating is dependent on the guaranty.

For example, Standard & Poor's last week placed auto lease-backed transactions from World Omni Financial Corp. on watch for possible downgrade because of their exposure to multilane Chubb Indemnity Insurance Co., one of the many insurance concerns impacted by the terrorist attacks. Chubb insurance provides for losses related to the residual valuations of World Omni's securitized auto leases (see ASR 7/23/01).

On the reinsurance side, companies being closely watched include Munich Re, Partner Re, Swiss Re, American Re, and XL.

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