Upgrades were mainly attributable to better-than-expected collateral performance and were principally NPLs (29% of upgrades) and Auto and Vehicle (16%). Most downgrades were on NPLs (68%) and CRE/CMBS instruments (20%). In the case of NPLs, downgrades were mainly attributable to depressed sales prices; in the case of CRE/CMBS, to refinancing risk and depressed values against a backdrop of persistent inflation and rising interest rates.

Scope’s structured finance team covered 392 instruments across 186 transactions in 2023, of which 96 were new instruments across 57 transactions and 296 were monitoring reviews across 129 existing transactions. Of the instruments monitored in 2023, 13% were upgraded and 17% were downgraded.

Of the new instruments, approximately 42% was rated AAA, while 2% was rated sub-investment grade. The total rated volume to the end of 2023 was EUR 269bn-equivalent , up 16% year-over-year, including EUR 2bn of rated new-issue volumes in the fourth quarter of 2023.

The transaction of the quarter in Q4 2023 is Wolf Receivables Financing 3 Plc a GBP 630m gross-book-value securitisation of UK re-performing unsecured consumer debt. The loans were part of Lowell Financial’s portfolio and continue to be serviced by Lowell, the debt collection agency. Scope assigned an A+_SF rating to the class A notes. Scope also rated the first of the Wolf transaction series and upgraded the rating on the senior notes last year owing to good performance.

In the third quarter of 2023, we updated our CRE Loan and CMBS Rating Methodology (see here). The updates are expected to impact existing CRE loan and CMBS ratings.

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