KUALA LUMPUR, July 16 — The Covid-19 crisis is bringing long-term changes to structured finance worldwide, altering the risk profile of many asset classes because of the effects of government’s intervention, behavioural changes and other developments, said Moody’s Investors Service today.
Moody’s vice president and senior research analyst Frank Cerveny said long-lasting effects include slower growth in many countries, lower productivity and higher long-term unemployment with negative implications for structured finance transactions, particularly those exposed to cyclical and Covid-19-weakened businesses such as tourism, aviation and retail
“Very low-interest rates will support collateral performance across structured finance sectors, which will also benefit from favourable lending conditions, but low rates could also lead to a continued hunt for yield, thus weakening the credit quality of new securitised debt,” he said in a statement today.
Moody’s today released a report titled “coronavirus pandemic will accelerate and reshape credit trends in structured finance”.
The rating agency said government interventions, such as payment or bankruptcy moratoria, state-guaranteed emergency loans and other types of state aid, particularly in strategically important sectors, will be more likely in the future, following the current precedent.
That will alter the risk profile of structured finance transactions in most asset classes via immediately beneficial effects, but at the long-term cost of weakening obligors’ debt affordability and increasing refinancing risk, a few years from now, it added.
Moody’s said increased environmental and social consciousness will dampen international travel, with negative implications particularly for structured finance transactions exposed to the broader hospitality sector and the aviation sector.
Increased focus on environmental issues will also accelerate auto sector transformation, with mixed implications for auto asset-backed securities (ABS).
Residential mortgage-backed securities (RMBS), commercial mortgage-backed securities and covered bonds will be increasingly exposed to regulatory penalties for weak energy efficiency of existing buildings.
The expansion of social safety nets will be positive for consumer ABS, RMBS, covered bonds, and negative for some corporate securitisations while asset selection will increasingly take environmental, social and governance considerations into account, changing from negative screening to proactive selecting. — Bernama