The FINANCIAL — London-10 October 2011: Fitch Ratings says it will not immediately downgrade any structured finance ratings following Italy's sovereign downgrade to 'A+'/Negative from 'AA-'.
The agency has already tightened its rating criteria for Italian transactions based on asset performance and Fitch's outlook for the Italian economy.
The agency made fundamental changes to its rating criteria for SME collateralised loan obligations (CLO) in 2009 and Italian residential mortgage-backed securities (RMBS) in 2010 in anticipation of a prolonged economic downturn. This summer Fitch increased further the magnitude of the stresses it applies when assigning high SME CLO ratings compared with the agency's base case forecast. The agency also revised its house price forecast to factor in a larger drop in values for all RMBS rating stresses.
The base case default and loss rates for consumer asset-backed transactions are forecast on a transaction specific basis. On average base case default expectations have been increasing but are largely offset by the fast repayment profiles of the transactions
"Fitch's current analysis factors in a further deterioration of the economic environment. This means immediate changes to rating criteria are not necessary," says Michele Cuneo, senior director and head of Italian Structured Finance at Fitch.
If the sovereign downgrade has implications for Italian bank ratings, this may affect the eligibility of counterparties in Fitch-rated transactions. If not remedied, this could lead to rating actions.
The sovereign rating of 'A+'/Negative in itself does not prevent Italian SF from achieving 'AAAsf' ratings, when sufficient credit and structural mitigants are in place.
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