Most Spanish securitization transactions issued since August 2007 have been retained by banks with the eligible securities used as potential European Central Bank (ECB) repo collateral.
According to Fitch Ratings, the Spanish banks' use of ECB liquidity increased to 47.6 billion ($74.6 billion) in April 2008, compared with 19.1 billion a year earlier. This funding incentive, Fitch said, is driving changes in Spanish securitization transactions.
Since most Spanish MBS and ABS transactions are being retained by the issuer for liquidity purposes, banks are looking to maximize balance sheet liquidity and, as a result, have changed their asset selection criteria from what is used in a typical ABS/MBS transaction.
For example, Fitch said that recent retained RMBS deals have pools with higher LTV profiles. Additionally, in other asset classes, some pools analyzed carried elevated levels of concentrations to obligors and higher risk sectors, including the real estate and construction sectors.
In these cases, Fitch said it assigned a rating to the notes that had higher credit enhancement levels, which reflect the higher risk of the pool. However, in some cases the agency was not selected to proceed with a rating, or chose not to proceed with a rating.
"Given the current ECB rating requirements, most Spanish structured finance transactions issued since the end of last year have also been executed with a single rating," Fitch said. "This compares to two, and sometimes three ratings, assigned to transactions under normal market conditions."
The trend, the rating agency said, has weakened credit enhancement in dealss because originators only need to meet the credit enhancement requirement of a single agency, which is usually the agency with the lowest thresholds. Once the market reopens, the lower credit enhancement and weaker collateral profile of these deals could hinder these transactions' liquidity, Fitch said.
