TEXT-Fitch: Spanish SME CLOs well protected despite real estate exposure
(The following statement was released by the rating agency)
July 04 – Spanish SME CLO ratings are resilient in scenarios where
the collateral performance significantly deteriorates but sovereign or
counterparty risk does not increase, according to a new report by Fitch Ratings.
This is despite their exposure to the real estate sector. Under a severe stress,
no losses are expected for ‘AA-sf’ tranches, the highest rating achievable for
Spanish structured finance transactions.
Fitch’s report, entitled ‘Spanish SME CLO Stress Test’, shows the stresses
required to see multi-category downgrades of Spanish SME CLO ratings.
“Spanish SME CLOs have built-up a high level of credit enhancement through the
continuing deleveraging of SME static portfolios,” says Laurent Chane-Kon,
Director in Fitch’s Structured Finance group. “As a result, AA-sf tranches can
sustain a severe portfolio deterioration stress involving the collapse of the
real estate sector in which 75% of SMEs from this sector would default and
property prices would depreciate by 80%.”
In addition, the report highlights that 69% of ‘AA-sf’ rating are driven by the
sovereign-risk driven cap. These tranches benefit from a higher credit
enhancement level, averaging 67%, and are not expected to be downgraded below
investment grade under a severe portfolio
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