Royal Bank of Scotland (RBS) analysts said in their weekly report that the European Central Bank’s (ECB) decision last Friday to relax its repo criteria will revive CMBS issuance from lower-rated countries — namely Portugal and Ireland.
Specifically, they believe that originators from these sovereigns will be able to structure retained securitizations in order to access the ECB’s liquidity window due to the new changes. The impact on the other peripheral euro countries will be negligible since Spanish banks already meet the ECB’s minimum 'A-' rating criteria, and Greek banks are even too low rated to meet the new lowered rating threshold.
The new requirement mandates that a CMBS bond be a senior tranche and have a current rating of at least ‘BBB-.’ Under the old requirement, to be repo-able a CMBS bond also had to be a senior tranche in addition to having a ‘AAA’ rating at inception and a current rating at or above ‘A-.’
The haircut for ‘BBB’ CMBS is fixed at 32%, which contrasts with the 26% haircuts applied to other kinds of securitized bonds in the ‘BBB’ category.
In their weekly research report, Bank of America Merrill Lynch analysts disagreed with RBS’ conclusion, stating that only Portugal would be positively impacted by the revised repo criteria. RBS, at any rate, saw little impact on CMBS in terms of incremental liquidity.
