Global Structured Finance Loss Forecasts Continue to Fall-Fitch

September 13, 2017/Fitch Ratings

Our forecast losses on structured finance (SF) bonds continue to fall, due both to new issuance and lower loss expectations in US RMBS and EMEA CMBS, Fitch Ratings says in a new report.

We expect total global losses on Fitch-rated SF bonds issued between 2000 and 2016 to be 3.2%. This is down from our forecast of 4.0% two years ago (covering 2000-2014 issuance), and from 4.9% five years ago (for SF bonds issued from 2000-2011). To date, less than 2% of SF bonds have been written off.

The latest reduction is driven both by substantial new issuance since 2015 (notably in markets such as US CMBS and US ABS), and also by lower losses expected, in particular in US RMBS, where home price appreciation has helped bring down our total loss expectations for pre-crisis vintages by 1.8pp to 6.3%. Nevertheless, US RMBS (chiefly Alt-A and subprime deals) still contributes nearly half of global SF total losses.

Repackaged US RMBS have contributed to losses in the US structured credit sector, which we forecast to experience the largest total losses as a percentage of bonds issued (23.4%). Almost all global losses relate to bonds issued before 2009.

This is in sharp contrast to a number of asset classes, where we forecast total losses at or close to zero; these include UK and Dutch prime RMBS, UK, German and French ABS, and APAC RMBS and ABS. In structured credit, while legacy SF CDOs have experienced high losses, we forecast just 0.3% total losses for leveraged loan CLOs. Across asset classes, post-crisis vintages benefit from better quality collateral and higher credit enhancement.