Moody’s- Pandemic Impact on Americas Securitizations Varies and Depends on Duration and Evolving Events

•            The impact of the pandemic will vary across structured finance asset classes in the US and the rest of the Americas

•            Some US commercial real estate and some corporate debt-backed securitization notes face risks from highly exposed industries

While there could be a greater impact on securitizations in the Americas with exposure to the most directly and highly exposed industries, the negative effects of a slowdown in economic activity stemming from the global spread of coronavirus will vary across structured finance transactions asset classes.

The ability of securitization notes to withstand the fallout of the pandemic will depend on its duration and issues including the strength of structural protections, according to a Moody's Investors Service analysis of bonds they rate. Moody's analysis partly reflects the rating agency's most recent baseline macroeconomic assumptions. The report notes that declines in interest rates, lower oil prices and ongoing government actions will have mixed effects.

“Our assessments will evolve as events unfold on a daily basis,” says Moody's Senior Vice President Nicky Dang. “The degree of vulnerability we cite reflects the relative potential for deterioration in bond credit quality. Vulnerability among bonds that we do not rate potentially differ from these assessments, possibly to a large degree.”

•            Some US commercial real estate securitizations face risks from direct impacts on travel and consumption, including fewer visits to stores, as well as from damage to the broader economy.

•            Although US CLOs are well diversified across many industries, a meaningful share of collateral in certain deals is linked to highly exposed companies, putting the credit quality of some junior tranches at risk.

•            Other corporate-related securitization sectors linked to highly exposed industries also have high or moderate vulnerability among their rated notes.

•            Relative risks within consumer-related securitizations reflect differences in borrower credit quality, debt payment priorities, and certain structural issues.

•            Certain types of securitizations are backed by assets with relatively limited likelihood of being negatively affected. Such sectors include wireless tower, tobacco settlement, tax lien and stranded utility cost ABS.

•            Structural protections often significantly limit the odds of potential changes in note credit quality.

Subscribers can access the report at: http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1219585