Monoline Woes to Have Little Impact on Europe/Asia Assets
The ongoing capitalization challenge surrounding monoline bond insurers should not greatly affect the underlying assets in Europe and Asia. Fitch Ratings said today it expects limited impact on European and Middle East (EMEA) and Asia Pacific (APAC) region structured finance (SF) transactions currently outstanding from exposure to monoline financial guarantors.
The comments follow a period of high profile, adverse rating actions by Fitch in relation to the Insurer Financial Strength (IFS) ratings of some monoline financial guarantors. The agency said that there were only a limited number of transactions with such a financial guarantee (wrap) amongst traditional asset classes in these regions. In addition, the existence of indicative “underlying” or “standalone” ratings - based on transaction structure and asset analysis alone without the benefit of the financial guarantee (wrap) - meant many “wrapped” tranches in SF transactions from EMEA and APAC had not seen their ratings lowered to the same degree as the financial guarantor providing the wrap.
Many wrapped tranches are from highly seasoned transactions in these regions As a consequence, many of the underlying standalone ratings absent the wrap have been upgraded over time. When some of the monolines saw their IFS ratings lowered, Fitch found that many of these tranches were not downgraded to the same degree, or even at all, due to this factor.
Further details can be found in Fitch’s useful “FAQ: Monoline Financial Guarantors in EMEA/APAC Structured Finance“, which examines monoline guarantor exposure in these regions.
The report finds that primary financial guarantor exposure in these regions is very limited in more traditional asset classes (like RMBS and CMBS), but features more prominently in whole business asset areas. The vast majority of wraps in both regions are provided by either Ambac or MBIA, both of which have seen adverse rating action in recent months.
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March 28th, 2008 at 11:59 am
[…] in Research Recap’s most popular post of the week, Fitch asserted that the monolines’ problems should not have much negative impact on the assets they are […]