Outlook dim for structured finance

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The outlook for the performance of major structured finance asset classes in Europe, Middle East and Africa (Emea) over the next 12 to 18 months vary between stable and negative. The revelation comes from MoodyMoody's Investors Service in its new report, Emea Structured Finance Asset Performance Outlooks, an update on the rating agency's outlook report published in January and February. "In the current juncture in the economic cycle, MoodyMoody's outlook for the performance of major asset classes in EMEA structured finance range from stable to negative, but are tilted towards negative overall," says Nitesh Shah, a MoodyMoody's economist and co-author of the report.

Since January 2008, the rating agency has observed a move towards negative from stable/negative for asset classes such as United Kingdom prime residential mortgage-backed securities (RMBS), Spanish consumer loans and South African autos. In addition, German commercial mortgage-backed securities (CMBS) have moved to stable/negative, compared to MoodyMoody's stable outlook in February.

For the first time, MoodyMoody's has assigned performance outlooks to French CMBS (negative), Dutch CMBS (stable), Russian RMBS (stable) and South African CMBS (stable/negative).

"A common theme across Emea is the slowing economic growth combined with rising inflation, which will have a different impact across asset classes and jurisdictions. For most asset classes, MoodyMoody's expects performance to remain within current assumptions, although there may be some specific segments and some outlier transactions that will see rating actions," Shah said.

MoodyMoody's report examines the outlook for each major asset class across the Emea region, focusing on major countries and incorporating MoodyMoody's views on the competitive landscape, the origination and underwriting practices of the industry, as well as the key performance trends. It also addresses the rating implications for MoodyMoody's-rated securities.

The outlook for UK securitisation is negative. But MoodyMoody's considers that any potential deterioration for more recent originations of prime RMBS will be mitigated by cross-vintage seasoning, particularly for

master trusts. In non-conforming RMBS, older vintages will benefit from seasoning and prior house price growth, but newer vintages will face increased negative rating pressure.

© Emirates Business 24/7 2008