Sept 13 - Better reporting in EMEA structured finance transactions has seen nearly one-third of transactions merit a higher Issuer Report Grade (IRG) since we re-launched IRGs in November last year, Fitch Ratings says.
Our 1-5 star IRG scale reflects the amount, accuracy and timeliness of information received for monitoring the performance of structured finance transactions. While there is still room for improvement, with just 12.4% of transactions receive the highest 4-star or 5-star grades, the discussions with report providers that followed the re-launch showed that many welcomed the opportunity to address weaknesses in reporting.
The improvement has not been uniform, with better quality reporting seen in deals that are marketed to investors than in those retained for use at central bank liquidity facilities. That said, ECB and Bank of England reporting requirements have driven some improvement, and may continue to do so, although some of the information that we consider important in our IRG scorecards (such as counterparty information) is not incorporated into their templates.
Perhaps reflecting the fact that many recent auto and consumer loan ABS issues have been publicly placed, this sector has the highest proportion of 5-star grades (around 25%). Over three-quarters of CMBS deals only achieve a 1-star IRG, mostly due to the omission of counterparty information. However, a relatively high proportion (11%) achieve 5-stars, reflecting the importance of third-party servicers and cash managers, some of whom have taken the opportunity to improve their reports, in the sector.
12% of RMBS deals get a 4-star or 5-star IRG, compared with no deals in November. Around half of the RMBS deals that only receive one star are lacking five items or less in their reports that would be needed for a higher grade, suggesting that the IRG could be improved relatively easily. However, issuer feedback suggests that IT or other logistical limitations could make this more challenging than it appears.
We expect Dutch RMBS IRGs to improve when the standardised reporting template being developed by KPMG is launched in the near future.
Last year we reset the guidelines for assigning IRGs to ensure they reflect the extra challenges of monitoring structured finance transactions during a period of stress following the financial crisis. As a result, we re-launched IRGs in November. IRGs are based solely on publicly-available information.
The changes in IRGs seen since then were discussed in a conference call on information quality in securitisations last week. Replay details are available at www.fitchratings.com. Our full report will be published next week.