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July 9 (Reuters) - (The following statement was released by the rating agency)
The increase in German corporate insolvencies in H113 will lead to a moderate increase in default rates in commercial leasing ABS transactions, but we do not anticipate any impact on current ratings as a result, Fitch Ratings says. The H1 increase is consistent with our deal-by-deal base case default assumptions and observed default rates should remain below those assumed in our higher rating stress scenarios.
Corporate insolvencies in Germany have increased to 15,430 companies in the first half of 2013 compared with 14,920 companies in the year-earlier period, according to Creditreform, a German credit bureau. This 3.4% increase is the first in Germany since the recessionary year of 2009 and is mostly due to the slowing economic activity in Germany during the past months. For all of 2013, Creditreform expects between 30,000 and 31,000 companies to become insolvent, an increase of between 4.5% and 7.9% compared with 2012.
We expect the increasing trend in corporate insolvencies to translate into moderately rising default rates in structured finance transactions, where the securitised portfolios contain contracts originated with corporate obligors. Most of the insolvencies have been with small and medium enterprises (with a turnover of up to EUR5m). We expect this trend to continue, as smaller companies are more sensitive to weaker exports caused by the continuing recession in the eurozone.
As a result, we do not expect a significant performance change in large balance sheet SME CLOs, where borrowers typically have higher turnover levels. A more pronounced impact is likely on default performance of commercial leasing ABS transactions, where the lessees are usually smaller.
We derive default rates in expected (base) case scenarios, as well as in the higher rating scenarios, by analysing historical default data provided by the originators for at least the previous five years, covering all phases of at least one economic cycle and including years of severe economic stress. An example of a recessionary year was 2009, when 32,930 firms filed for insolvency, which is higher than Creditreform’s forecast for the current year.
We set our base case default rate to be in line with our expectation of future economic development, while the default rates in higher rating scenarios incorporate cushion against unexpected economic deterioration. As a result, while we expect default rates to increase following rising corporate insolvencies, we project them to remain in line with our base case assumptions and below our assumptions in higher rating stress scenarios. Thus, an impact on the current ratings is not expected.