Fitch Sees Signs of Life in ABCP Market
Though the sector still faces challenges, Fitch Ratings sees signs of improvement in the market for Asset-Backed Commercial Paper.
In the first quarter, market participants remained saddled with many of the same issues plaguing the ABCP market since last summer, which contributed to a further 11% slide in U.S. ABCP outstandings ($722 billion) from year-end 2007. Outstandings were down 44% from the peak in July 2007, due to the termination and unwinding of Special Investment Vehicles and other complex program types.
From a credit perspective, however, several positive trends are emerging in the ABCP market, according to Managing Director and group head Michael Dean.
Over the past several months, many of the surviving ABCP conduit administrators have taken proactive measures to both improve the credit quality of their portfolios and to enhance the structural protections afforded investors.
Despite continued troubles such as an uncertain U.S. economy and heightened concerns surrounding recessionary fears, Fitch does not anticipate that these macro issues will directly affect the ratings of traditional multiseller ABCP conduits. However, ‘global bank rating pressures could translate into ABCP sponsor, liquidity provider, and counterparty rating action that could affect ABCP ratings,’ Dean said.
Fitch’s latest ABCP Paper Trail notes the following positive actions by ABCP sponsors:
- Cleansing portfolios of troubled exposures and eliminating certain asset classes altogether.
- Tightening covenants and triggers with sellers.
- Eliminating funding outs under liquidity agreements, including downgrade provisions for transactions insured by financial guarantors.
- Increasing credit enhancement levels on a transaction-specific basis, often to the sponsors highest internal standard.
- Adding programwide credit enhancement (PWCE) or increasing existing PWCE levels.
- Fully supporting certain transactions through liquidity.
- Fully supporting the entire conduit portfolio.
- Increasing disclosure.
- Relaunching programs with additional ratings to increase visibility and information available.
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