SECURITIZATION SPOTLIGHT

The use of artificial intelligence in collateral underwriting comes with both benefits and risks to structured finance transactions, while jurisdictions take different approaches to AI regulation.

As the regulatory environment continues to evolve, US and European banks have sought regulatory capital relief by offloading the credit risk of loans they make via special types of transactions.

Should European non-bank direct lenders turn to collateralized loan obligation financing, transaction collateral will likely reflect the wide range of borrowers to which private credit lenders cater.

Basel 3.1 reforms will lead banks to apply high haircuts to unsustainably high property values and adjust mortgage risk weights to better differentiate between low-risk and high-risk loans.

Recent cyberattacks on three mortgage servicers did not hurt rated residential mortgage-backed security performance, but show how disrupted operations can affect structured finance transactions.

As solar panels become more common in Europe, the first solar loan asset-backed security becomes more likely. But while the asset class is new, many associated risks are familiar to ABS investors.

Interest rate hikes in the wake of the pandemic have driven an increase in commercial real estate delinquencies, but a variety of factors help mitigate many refinancing and other performance risks.

High interest rates will weigh on collateral performance in 2024 as structured finance markets adjust to structural shifts, regulatory reforms and geopolitical polarization.

Home price growth has stalled in most major economies globally. However, despite rising wages, housing affordability is weakening after record or near-record house price appreciation in recent years.

Various negative macroeconomic trends loom larger for middle market companies than for larger corporates, but the impact on middle market collateralized loan obligations is limited.

Asset-backed securities exposed to small and medium-sized enterprises remain among the transactions most vulnerable to continued slow economic growth around the globe. How has economic weakness eroded collateral performance thus far and what do we expect for the rest of 2023?

With Libor’s demise imminent, how prepared are US CLOs to move on from the long-time benchmark?

Moody’s analysts David Burger, Mark Wasden and Neal Epstein explain how differences in structure and asset risk give rise to divergent credit profiles among the three investment vehicles.

As climate change intensifies, how are utility companies using securitization to recover costs related to unforeseen developments like major storms and other natural disasters? And how is the market for these transactions evolving?

Jerome Cheng and Tengfu Li discuss how China’s economic rebound will support residential mortgage-backed securities and a handful of Asia-Pacific banking systems with close ties to the country.

Structured finance transactions are exposed to recent banking stresses in the US and Europe at both the collateral and counterparty levels. But will that impact be material? And what kinds of protections do transaction structures provide?

As borrowing costs continue to rise and consumers’ purchasing power wanes, borrowers’ ability to make debt payments is weakening. What makes auto ABS among the securitization sectors most vulnerable to this deterioration in consumers’ finances? And what does the sector’s ongoing transition to electric power mean for transactions we rate?

European small and medium-sized enterprises, and in turn securitizations backed by their debt, remain among the most vulnerable borrowers as the COVID-19 pandemic has given way to Ukraine War-driven economic uncertainty over the past year. With the war still raging and economies weakening, where are some of the biggest risks in the sector? And what kind of mitigants do ABS structures provide?

Rising rates and a deteriorating macroeconomic environment will make it more difficult for commercial real estate borrowers to refinance, but some will have more difficulty than others.

With the global economy on the verge of a downturn amid extraordinarily high levels of uncertainty, the performance of assets backing structured finance transactions will weaken in 2023. But erosion will not be distributed evenly across markets.

Interest rate hikes in many regions have slowed home price growth, but even where prices have started to decline, affordability remains strained. What are the implications for mortgage-backed securities, particularly for transactions backed by mortgages originated in the past year, when home prices were peaking?

Collateralized loan obligation portfolios and structures are always evolving, changing along with the credit environment. But since the pandemic set in, how have US and European deals continued to converge, and in what ways have they gone in their own directions? Meanwhile, how has the CLO manager landscape changed in each region?

The harmonization of covered bond laws across the EU will benefit bank issuers, transactions and investors alike. Meanwhile, with inflation heightening risks in many structured finance markets, covered bonds continue to benefit from the relatively strong credit quality of their bank issuers. How big of a deal is harmonization and what types of loans will it affect? Are there any holes in the new, unified framework?

The performance of auto-related asset-backed securities we rate in the US and Europe will normalize in the coming months as auto prices flatten out and macroeconomic factors such as inflation weigh on consumers. How do both used and new auto price movements affect ABS? Will supply disruptions persist into 2023? And how much will rising interest rates affect transactions backed by auto loans and leases?

Description: With loan-level delinquencies on the decline, the performance of CMBS in both the US and Europe is healthy. But some sectors are drawing extra attention in the wake of the pandemic. How much of the retail sector’s recent struggles are attributable to the pandemic and how much are a continuation of the ongoing trend away from bricks and mortar? Which property types are best positioned as inflation continues to rise?

Investors across markets are increasingly taking ESG factors into consideration. The structured finance world is no stranger to these efforts and their impact on transaction credit quality. To what extent have investor preferences and regulations driven changes to the structured finance market in recent years? And how is The Netherlands an example of how flooding risk factors into real estate collateral considerations?

Madhavi Bokil of our Credit Strategy and Research group joins host Aaron Johnson to lay out our inflation and interest rate forecasts. And then, Peter McNally, Frank Cerveny and Marie Lam of our Structured Finance group discuss the impact of inflation and rising interest rates on structured finance transactions around globe.

Antonio Tena of our Structured Finance group and Atsi Sheth from our Credit Strategy and Research team join host Aaron Johnson to discuss the impact of the Russian invasion of Ukraine on European structured finance. And then Yehudah Forster, an attorney in our Structured Finance group, talks about the impact of a recent court ruling on US consumer debt-backed securitizations.

Lana Deharveng and Deryk Meherik of our Structured Finance group join host Aaron Johnson to discuss the impact of US collateralized loan obligations finding new domiciles, both those backed by corporate debt and those backed by commercial real estate debt.

Corporate asset-backed securities (ABS), some of which were hit particularly hard by the pandemic, are now benefiting from the rapid economic rebound in the US. Growth in travel demand, particularly among consumers, will benefit several asset classes, including aircraft lease ABS. Meanwhile, persistently high used car prices will continue to boost rental car ABS credit quality and performance.

In this episode, Ed Manchester of our Covered Bond team and Jim Ahern, the head of our Structured Finance group, join host Aaron Johnson to discuss our outlooks for covered bonds and structured finance in general for 2022.

In this month’s episode, Sam Spackman and Lana Deharveng of our Structured Finance team in NY join host Aaron Johnson to discuss the recent global CLO issuance boom and changes to deal documentation.

In this month’s episode , Alena Chen of our Structured Finance team in Sydney, and Gracie Zhou of our Structured Finance team in Shanghai, join hosts Aaron Johnson and George Liondis to discuss the effect of COVID-19 on the performance of securitizations.

In this month’s episode, Nick Monzillo of our US Structured Finance team, and Tony Parry of our European Structured Finance team join hosts Aaron Johnson and Ruth Mantell to discuss the stronger-than-expected performance of asset-backed securities during the coronavirus pandemic.

In this month’s episode, Jody Shenn of the Structured Finance team joins hosts Aaron Johnson and Ruth Mantell to discuss hot topics in the market. Then, Brian Snow from the Commercial Mortgage-Backed Securities (CMBS) team talks about the effects of New York’s new emissions law on CMBS.​​​

In this month’s episode, Ifigenia Palimeri of our London Structured Finance team joins hosts Aaron Johnson and Xhensila Pisha to discuss the extent to which structured finance backs lending around the globe. And then, Chaitali Bharucha, from our New York Structured Finance team, and Monica Curti, from our Milan Structured Finance Team, will talk about the risks facing SME ABS as pandemic-driven support measures expire.

In this month’s episode, Peter McNally of our New York Structured Finance research team joins hosts Aaron Johnson and Tanguy Hespel to break down the extent to which asset classes globally face ESG-related risks. And then, Lana Deharveng, from our New York Structured Credit team, will talk about how CLOs are increasingly adopting ESG-focused investment criteria.

In this latest segment, Peter Hallenbeck of the Structured Credit team and Masako Oshima of the Consumer Assets team consider the effect that Libor transition will have on various structured finance asset classes. Plus, Aaron Johnson and Greg O’Reilly discuss the performance of structured finance collateral one year into the coronavirus pandemic.

In this month’s featured segment, Yehudah Forster of the Residential Mortgage-backed Securities team breaks down potential changes to the qualified mortgage rules, and what they mean for the credit quality of future RMBS. Plus, Aaron Johnson and Xhen Pisha draw on our 2021 outlooks to highlight the structured finance asset classes on the bumpiest roads as the economy recovers from a tumultuous 2020.

Hosted by Aaron Johnson and Xhensila Pisha of the Structured Finance team, our new Securitization Spotlight podcast series brings you the insight you need to keep on top of corporate and consumer debt securitization markets. From the impact of an evolving regulatory landscape and the ongoing recovery from the pandemic, to the ongoing effects of lower-for-longer interest rates and investors’ growing focus on ESG considerations, Aaron, Xhen and their guests will deliver the analysis that matters.