Losses on structured finance transactions are on track to finish this year slightly lower than 2012, according to a new report from Fitch Ratings.
Fitch assigned ratings to nearly US$10 trillion of global structured finance bonds between 2000 and 2012. Of that balance, Fitch estimates total losses (realized losses and future expected losses) of 4.6%.
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This figure is slightly lower than total losses of 4.9% in last year’s analysis. Even excluding the newly-added 2012-vintage transactions, total losses will still finish lower than 2012 (at 4.7%).
Key drivers of loss expectations are also unchanged. Not surprisingly, Fitch’s total loss expectations are driven by U.S. RMBS, which accounts for over half of all global structured finance losses. A closer look at the RMBS numbers reveals a marginally improved picture for U.S. transactions, with losses to come in 9.5% for 2013 (compared to 9.9% last year).
Gioia Dominedo, senior director, Fitch Ratings, said, "The significant recovery in the housing sector has supported continued improvement in borrower performance and has marginally buoyed the loss outlook for the U.S. RMBS sector overall."
Structured finance CDOs (largely comprised of related RMBS bonds) account for a further 21% of global SF losses. Losses are also concentrated in peak market vintages, with bonds issued between 2005 and 2007 contributing 88% of global SF losses.
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By GlobalDataTotal losses remain low for global consumer ABS (0.1%), EMEA RMBS (0.3%) and APAC RMBS (0.003%). The largest increases in total losses are visible in U.S. CMBS (6.3%) and EMEA CMBS (4.1%).
Dominedo added: "Lower-than-expected valuations and recoveries on underperforming loans have led us to revise our loss expectations for legacy U.S. and EMEA CMBS loans."
