Month: February 2010

Rating Agency Developments

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On February 11, S&P published its methodology and assumptions for rating U.S. CDOs collateralized by commercial real estate (CRE) loans.  S&P Release.

On February 8, Moody’s released its approach to rating U.S. ABS backed by insurance premium finance receivables.  Moody’s Methodology. 

On February 9, S&P refined its assumptions for assessing the equity content of bank and insurance hybrid capital instruments that have a materially restricted ability to stop paying coupons.  S&P Release. 

On February 11, Moody’s reported that it would rate a contingent capital security that may convert into common equity only if it can reasonably assess when the security’s conversion would likely occur.  Moody’s Release.

On February 9, S&P adapted its assumptions for assessing bank hybrid capital instruments to take into account the December 2009 Basel Committee proposals on hybrid capital.  S&P Release. 

On February 10, S&P refined its methodology for analyzing the impact of “look-back” periods (sometimes called dividend pusher clauses) on hybrid capital instruments.  S&P Release. 

Note: Free registration is required for Moody’s and S&P releases and reports.

TARP Panel CRE Report

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On February 10, the TARP Congressional Oversight Panel warned in a report that commercial real estate loan losses over the next four years could jeopardize the stability of many banks, particularly community banks. Approximately $1.4 trillion in commercial real estate loans made over the past decade will require refinancing between 2011 and 2014, and currently, almost half are underwater.  Panel Report.

Rating Agency Developments

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On January 29, DBRS released its proposed Master U.S. ABS Surveillance Methodology which provides an overview of surveillance procedures and insight into the credit philosophy DBRS utilizes to monitor the performance of transactions it has rated.  Comments are requested on or before February 26.  DBRS Release.  DBRS Methodology. 

On February 4, Moody’s re-evaluated the assumptions it uses to rate auto lease ABS in Europe, the Middle East, and Africa (EMEA) exposed to residual value (RV) risk.  Moody’s Release. 

On, February 1, Moody’s clarified its approach for providing a post-closing rating for structured finance securities. This report was published in light of the increased interest in that process following the amendment by the European Central Bank (ECB) of its eligibility criteria for structured finance securities for Eurosystem credit operations.  Moody’s Report. 

On February 1, S&P changed its loss assumptions for credit stress testing U.S. financial institutions.  S&P Release.

Note: Free registration is required for S&P and Moody’s releases and reports.

Treasury Releases PPIP Report

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On January 29, Treasury released the initial quarterly report for the Legacy Securities Public-Private Investment Program (PPIP) which includes a summary of capital activity, portfolio holdings and current pricing, and fund performance.  As of December 31, 2009, approximately $4.3 billion of a total purchasing power of $24.8 billion had been invested in eligible assets and cash equivalents under the program.  Treasury Release.  Treasury Report.

Expiration of Lending Programs

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On February 1, the Fed closed, as previously scheduled, the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (AMLF), the Commercial Paper Funding Facility (CPFF), the Money Market Investor Funding Facility (MMIFF), the Primary Dealer Credit Facility (PDCF), and the Term Securities Lending Facility (TSLF).  Fed Release.

Comptroller Dugan Speech to ASF

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On February 2, Comptroller of the Currency Dugan addressed the American Securitization Forum on key issues in the U.S. securitization market. Dugan highlighted the importance of balanced regulatory reform and discussed new and proposed regulations. Dugan asserted that “skin-in-the-game” risk retention proposals would not be the most effective way to solve the problem of lax underwriting practices and could prove to be a major obstacle in restarting the securitization market, and that establishing and enforcing minimum underwriting standards is a better way to improve the underwriting quality of securitized loans.  Dugan Speech.