Climbing unemployment in Spain has had a negative impact on the collateral performance of consumer loan ABS, said Moody's Investors Service in its Annual European Consumer Loan ABS Sector Review.

"To date, the large majority of consumer loan ABS downgrades have occurred in the Spanish market where unemployment is expected to rise to an average of 18.4% in 2009 and 20.7% in 2010, from an average of 11.4% in 2008," said Cher Chua, a Moody's assistant vice president.

Rating actions were taken on seven Spanish consumer loan ABS deals in Q4 2008 due to portfolio performance concerns and in July 2009, Moody's placed six previously downgraded transactions on review for further downgrade and placed three new transactions which closed in 2008 on review for downgrade.  

Chua said that Moody's is currently re-evaluating its portfolio default expectations for eight Spanish consumer loan ABS transactions where notes were placed under review for downgrade in July 2009.

Moody's anticipates potential further increases in delinquencies, and possibly defaults, from unemployed borrowers who currently benefit from state unemployment benefits provided by the Spanish Government for up to two years following job loss.

The rating agency believes that this dynamic may be allowing borrowers to continue making payments following a loss of income, thus delaying arrears from increasing immediately in line with unemployment trends.

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