Standard & Poor's is requesting feedback on a potential new product that provides market participants with a tool to analyze projected recoveries on structured finance securities.
The rating agency is looking to offer an interactive Web platform, called Structured Finance Recovery Analytics, that would incorporate its assessment of a security's recovery under various stress scenarios.
Recovery Analytics would provide users with the capability to perform a more in-depth analysis of the projected recovery under a variety of stresses other than the Stressed Recovery Rating. The output obtained from the Recovery Analytics tool would not constitute official ratings and could differ from official credit ratings and Stressed Recovery Ratings.
The tool would provide a window into S&P’s ratings analytics, enabling the user to view the output of its stress scenarios from various angles, thereby increasing the transparency of the ratings.
The data and information on the platform would be available for analytical purposes only, and the results would not denote or be a prediction of or substitution for an S&P recovery rating.
Meanwhile, Fitch Ratings also said it is currently looking into enhancing its Web-based surveillance tools for recovery ratings that allow users to manipulate assumptions and run their own recovery analysis.
This week the rating agency released its updated rating methodology for its Structured Finance Recovery Ratings (RRs). Fitch's RRs enhance transparency for the structured finance market by providing investors and other market participants with an easy to understand indicator of Fitch's expected recovery on distressed or defaulted RMBS, CMBS, CDO and ABS.
Initially launched as Distressed Recovery Ratings in April 2006, they were re-launched as Recovery Ratings as part of a ratings definition update by Fitch in February of this year. Fitch now has over 19,000 RRs, which operate on a 'RR1' (highest recovery) to 'RR6' (lowest recovery) scale and are a relative indicator of creditor recovery prospects on a given obligation within an issuers' capital structure in the event of a default.
“Investors recognize that while a structured finance bond may have a higher degree of default risk due to collateral deterioration, ongoing principal and interest payments can be valuable, particularly for senior bonds,” said Huxley Somerville, Fitch group managing director and U.S. MBS group head. “Fitch's Recovery Ratings are a vital enhancement to original ratings that have historically opined solely on the probability of first dollar loss, providing investors with the additional level of transparency they are seeking in quantifying and comparing those recoveries.”