Structured Finance Activity Report: ratings drift improves for first time in over a year
Ratings drift is the ratio between upgrades minus structured finance downgrades and the total number of monitored ratings over the previous 12 months. Over that period, Scope concluded monitoring reviews on 294 instruments across 125 outstanding transactions, leading to rating upgrades on 12% of the instruments and downgrades on 17%.
Upgrades, principally NPLs (31% of upgrades), Auto and Vehicle (28%) and SME (28%), were mainly attributable to better-than-expected collateral performance. Downgrades, mainly NPLs too (59%), were driven by depressed sales prices. CRE/CMBS instruments also saw some downgrades (24%) owing to refinancing risk and depressed values against a backdrop of persistent inflation and rising interest rates.
12-month trailing ratings drift
Source: Scope Ratings
In the year to September 2023, Scope assigned new ratings to 123 instruments across 78 transactions across various structured finance asset classes. Some 46% of the issue volume was rated AAA, while 4% was rated sub-investment-grade. Year-on-year rated new-issue volume growth stood at approximately 20% in Q3 2023, with a total of EUR 22bn in rated new-issue volumes over the quarter. As of the end of September, Scope had rated almost EUR 267bn in structured finance instruments since 2014.
Transaction of the quarter is Muzinich Luxembourg Funding Sarl - Compartment Pan III 1K Notes, an up to EUR 30m securitisation of a Luxembourg corporate direct lending fund. Scope assigned a BBB rating to the notes. Performance is linked to the investments of Muzinich Pan-European Private Debt III, SCSp. Although Scope has rated similar private debt fund repackagings on a private or restricted subscription basis, this transaction is the first of its kind publicly rated.
In the third quarter, we updated our Counterparty Risk Methodology, Non-Performing Loan ABS Rating Methodology, and issued a call for comment on our CRE Loan and CMBS Rating Methodology. None of the updates had any impact on outstanding ratings.
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