TEXT-Fitch publishes August SME CLO Compare
Aug 01 - Fitch Ratings has published an updated version of its SME CLO Compare. The report is updated on a monthly basis.
Counterparty exposures following the downgrade of Spanish banks continue to dominate rating actions in the SME sector over the past month. The Spanish bank downgrades followed the Spanish sovereign downgrades in early June (see 'Fitch Downgrades Spain's ICO to 'BBB'; Outlook Negative' dated 08 June 2012; 'Fitch Downgrades Santander & BBVA to 'BBB+'/Negative Outlook on Sovereign Action' dated 11 June 2012; and 'Fitch Takes Rating Actions on Spanish Banks Following Sovereign Downgrade' dated 12 June 2012 at www.fitchratings.com).
As a result of the bank downgrades, many Spanish SME transactions were left exposed to direct support counterparties that were ineligible to support ratings up to 'AA-sf', the highest rating achievable for Spanish structured finance (SF) transactions.
The 30 calendar period to implement remedial action to cure these ineligible counterparty exposures expired during July, resulting in 212 Spanish SF transactions being placed on Rating Watch Negative (RWN; see 'Fitch Places 212 Spanish SF Tranches on RWN' dated 16 July 2012 at www.fitchratings.com).
Given the large number of SF transactions that have been affected by the recent bank downgrades, the implementation of remedial actions is taking longer than anticipated and Fitch has maintained the RWN where actions have not been finalised. Of the 12 Spanish SME surveillance reviews completed since the mass review to place Spanish SF transactions on RWN, seven Spanish SMEs have senior tranches that have been maintained on RWN.
Additionally, the recent bank downgrades have reduced the number of Spanish banks that can support 'AA-sf' as eligible counterparties in Fitch's view. Gestoras have begun to replace Spanish banks that held direct support roles with non-Spanish financial institutions or their foreign affiliates. Fitch notes Barclays Bank plc ('A'/Stable/'F1') and Santander UK plc ('A'/Stable/'F1') in particular have been introduced as replacement account banks in a large number of transactions. In the case of FTA Santander 1, 2, 3 and 4, the gestora has replaced Banco Santander, S.A. ('BBB+'/Negative/'F2') with its UK affiliate Santander UK plc.
Despite the overhang of incomplete remedial actions, Spanish SMEs have demonstrated the ability to withstand stressed scenarios where the underlying collateral underperforms and in the absence of increased sovereign and counterparty risks. Fitch's recent report on Spanish SME stress testing showed that 'AA-sf' tranches can withstand a severe stress scenario where property prices depreciate by 80% and SMEs in the real estate sector experience a 75% default rate (see 'Spanish SME CLO Stress Test' dated 04 July 2012 at www.fitchratings.com). Spanish SME CLOs have benefited from significant increases in credit enhancement as their static underlying portfolios continue to delever.
In addition to the focus on Spanish SMEs, Fitch assigned 'AAAsf' ratings to Grecale S.r.l. during July (see 'Fitch Assigns SME Grecale S.r.l. Final Ratings' dated 13 July 2012 at www.fitchratings.com). Grecale S.r.l. is a EUR839.2m cash flow securitisation of loans to Italian SMEs originated by Unipol Banca S.p.a. The transaction features several hedging mechanisms to manage interest rate mismatches between assets and liabilities, a dedicated liquidity reserve as a mitigant against payment interruption and amortisation of the most senior note through excess spread that is independent of portfolio default levels. The new issue report was published on 27 July 2012 and is available at www.fitchratings.com.
Link to Fitch Ratings' Report: SME CLO Compare August 2012
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