Sector developments and company hires

Negative outlook for asset performance
Fitch is updating its rating assumptions for all global structured finance sectors to incorporate the economic impact of the coronavirus and related mitigation measures. The agency expects the global pandemic to result in an unprecedented economic contraction and while the rating effects will vary meaningfully across asset classes, asset performance deterioration is anticipated in almost all sectors globally this year. Under the update, Fitch will incorporate a revised common base-case scenario for all sectors reflecting the economic and rating implications of the pandemic. The agency currently assumes a global recession in 1H20 in this base-case scenario, followed by a recovery that begins in 3Q20. It has revised the asset performance outlooks to negative on almost all global SF sectors and started reviewing all outstanding ratings to reflect the new base-case scenario and economic forecast. The order of rating reviews will typically start with transactions identified to be most vulnerable to the stress. Fitch has already placed on rating watch negative or negative outlook more than 200 classes within higher at-risk sectors, such as hotel- or retail-concentrated CMBS and aircraft ABS. In some sectors, revised assumptions will require changes to rating models and criteria, which will be publicly disclosed through updated rating criteria reports.

In other news…

Large business guarantee scheme prepped
The UK government is set to launch this month a Coronavirus Large Business Interruption Loan Scheme (CLBILS), which will provide a partial guarantee of 80% to enable banks to make loans of up to £25m to firms with an annual turnover of £45m-£500m. CLBILS will be delivered through commercial lenders, backed by the British Business Bank, and is anticipated to be similar to the existing Coronavirus Business Interruption Loan Scheme (CBILS) that is targeted at UK SMEs (SCI 23 March). CLBILS will support a wide range of businesses with a viable borrowing proposal to access finance products, including short term loans, overdrafts, invoice finance and asset finance, according to Linklaters.

PCP term extensions welcomed
Volkswagen Financial Services (UK) last week amended its customary operating practices with the aim of reducing the effects of the coronavirus outbreak on its customers and dealer network. Moody’s notes that the measures will also help blunt the negative effects on VWFS UK's auto ABS and its parent's asset quality. The modifications include several additional forbearance measures for vulnerable customers and the introduction of term extensions of up to six months with respect to maturing personal contract purchase (PCP) financing contracts in the UK. VWFS UK will repurchase any loans subject to coronavirus extensions at a price equal to the principal amount outstanding, together with any arrears outstanding. Moody’s suggests that the term extensions will help reduce the credit negative effects of the coronavirus fallout on VWFS UK ABS transactions, as they will not sustain any residual value loss on those loans that benefit from them.