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19 Dec 2016
New York, December 19, 2016 -- Several overarching themes will affect securitization markets around the
world in 2017, Moody's Investors Service says in its global
structured finance outlook overview. Asset credit quality will
continue to weaken in some sectors but will stabilize in most others.
Slow but stable economic growth and monetary conditions in advanced economies
will support the credit performance of most structured finance assets
around the globe. Major regulatory developments will come into
full effect in the US and Europe, which will have a varied effect
on structured finance sectors in those regions . The market for
environment sector-related asset-backed securities (ABS)
will continue to develop, as will the marketplace lending and other
Credit Quality of New Transactions
"In the year ahead, the credit quality of the assets underlying
new securitizations will remain stable or weaken for most asset classes,
driven by macroeconomic factors or changing demand and supply dynamics,"
says Moody's Senior Vice President, Joseph Snailer.
"Meanwhile, issuers in some asset classes, such as US
RMBS, will expand into new products, mostly at the low end
of the credit spectrum."
In the US, the credit quality of loans in newly issued auto ABS,
commercial mortgage-backed securities (CMBS), credit card
ABS and marketplace lending ABS will stay mostly stable in 2017.
Meanwhile the credit quality of new collateralized loan obligations (CLOs)
and student loan ABS will weaken somewhat.
The credit quality of Canadian covered bond programs will be strong in
the new year as will the loan receivables backing Canadian auto ABS.
New issue Mexican RMBS will include additional credit positive features,
new Brazilian trade receivables ABS will feature tighter underwriting
but new Argentine securitizations will have weaker underwriting standards.
New European CMBS in 2017 will continue to include riskier loans.
While the credit quality of most new ABS and RMBS in Europe will be similar
to 2016 transactions, new auto ABS will be affected by a few credit
negative factors such as longer contract terms and higher loan-to-values.
Moody's expects the credit quality of assets backing new Chinese
auto ABS and RMBS to remain strong in the coming year, and that
commercial vehicle loan portfolios backing new auto ABS in India will
have good credit characteristics. In Korea, new credit card
ABS deals issued next year will be of good credit quality while that of
Singaporean and Korean covered bonds will likewise remain good.
However, riskier loans will have a negative impact on the credit
quality of 2017 Australian RMBS and auto ABS.
Performance of Outstanding Transactions
"Economic growth in advanced economies will continue at a slow pace,
of around 1%-2%, in 2017 benefiting the credit
performance of existing transactions in most structured finance asset
classes to varying degrees," says Moody's Snailer.
Low unemployment rates and rising wages in the US will benefit outstanding
RMBS and student loans. Loans in existing CLOs will continue to
perform solidly in 2017 as the impact of weakness in the energy sector
ebbs and the economy continues to grow, nudging the US speculative-grade
corporate default rate lower. Meanwhile, annualized loss
rates will rise in outstanding auto ABS transactions, but performance
will remain strong.
Improving economies in Canada, Mexico and Argentina will help structured
sectors there while the lagging effects of a recession will somewhat weaken
ABS performance in Brazil.
Continued low interest rates, 1% - 2% GDP growth
and an improving employment picture will support the credit performance
of existing European securitizations.
Slowing but still robust economic growth in China will keep ABS and RMBS
delinquencies low while CLO performance will decline somewhat.
Legal & Regulatory Developments
The UK electorate's decision to exit the EU will have credit and
legal implications on UK, and some EU, transactions,
Moody's says. Brexit creates legal uncertainty for existing
structured finance transactions because many cross-border deals
depend on harmonization and mutual recognition of EU laws.
In the US, the Dodd-Frank Act's risk-retention
rules and Reg AB II will be in full effect. Although President-elect
Donald Trump has called for a temporary moratorium on new regulations
and a possible repeal or roll-back of certain facets of the Dodd-Frank
Act, at this point, it is too early to assess Trump's
In Argentina, new asset classes, such as inflation-adjusted
mortgages, will emerge as a result of new regulation in fast-growing
economic sectors. Meanwhile, impending regulation on covered
bonds will provide an additional funding source for Brazilian banks.
Regulatory capital treatment for securitization in Australia has been
clarified under the final revised prudential framework for securitization,
APS 120. Meanwhile, the scope of foreign investors in Indian
securitizations will likely expand following the recent notification from
the Reserve Bank of India allowing foreign investors to invest in pass
through certificates issued by a special purpose vehicle.
Moody's expect issuance of green bonds to grow in 2017, following
several Moody's-rated transactions globally in 2016.
The US PACE and solar securitization markets will continue to develop
as credit quality remains strong. Volkswagen's US diesel
settlement is positive for its auto ABS and the VW fallout will continue
to filter through transactions in the US and Europe.
Marketplace Lending & Technology-related Sectors
Securitization will remain an option for funding marketplace lenders in
both the US and Europe, and risk characteristics will remain largely
unchanged. In the US, mobile phone and wireless tower ABS
transaction will continue to emerge as the sectors grow.
This report, "Global Structured Finance Outlook 2017--
Tepid Growth Props Up Asset Quality," can be accessed at
The report is part of a series of 2017 Credit Outlooks that provide insight
into next year's credit conditions across all sectors, and
is a summary of 30 individual structured finance sector outlook reports
already published. See more at www.moodys.com/2017outlooks.
NOTE TO JOURNALISTS ONLY: For more information, please call
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You can also email us at firstname.lastname@example.org or visit our
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This publication does not announce a credit rating action. For
any credit ratings referenced in this publication, please see the
ratings tab on the issuer/entity page on www.moodys.com
for the most updated credit rating action information and rating history.
MD - Structured Finance
Structured Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
Senior Vice President
Structured Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
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