DBRS Morningstar Releases European Structured Finance COVID-19 Credit Risk Exposure Roadmap

DBRS Morningstar released a commentary summarising the impact of the Coronavirus Disease (COVID-19) on the various securitisation markets we rate in Europe. We have published commentaries analysing the impact of the coronavirus on the various securitisation asset classes across Europe that navigate the expected economic impact on transaction performance and note potential areas of concern. The pandemic has abruptly changed the global economic landscape with an unprecedented swiftness and magnitude. While some geopolitical regions are beginning to gradually re-open businesses, we may not see a full recovery until sometime in 2021, based on our most recent set of country macroeconomic scenarios for GDP and unemployment published on 1 June 2020 (for more information, read “Global Macroeconomic Scenarios: June Update”).

In this commentary, we focus on how COVID-19 affects the various European structured finance sectors, including

--The immediate focus on transaction liquidity as a result of forebearance measures and imposed payment holidays.
--Default rates of borrowers closer to the economic business cycle, for example self-employed borrowers and small and medium-size enterprises (SMEs) in certain sectors, but also borrowers with previous negative credit history including loan restructuring will be more affected by the economic downturn, in our view.
--Charge-off and payment rate performance of credit card portfolios appears to be relatively more sensitive to changes in unemployment rates, resulting in some adjustments to our performance expectations.
--Asset values are likely to be distressed for a temporary period before recovering, putting pressure on the expected performance of loans dependent on asset values in the short term (e.g., due to secured loan maturity, asset sale or borrower voluntary termination rights).
--Moderate adjustments to recovery expectations for residential real estate and commercial real estate in line with the outlook, but also other assets securing loans and/or leases.

For further details, please see the full commentary.

Notes:
The full commentary is available at www.dbrsmorningstar.com.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

DBRS Ratings Limited
20 Fenchurch Street, 31st Floor, London EC3M 3BY United Kingdom
Tel. +44(0) 20 7855 6600
Registered and incorporated under the laws of England and Wales: Company No. 7139960