Sector developments and company hires

Negative rating actions tallied
Fitch reports that global structured finance negative rating actions - including downgrades, negative outlooks and rating watch negatives - reached an eight-year high in 1H20, reflecting weakening credit conditions due to the coronavirus pandemic-related recession. As of 30 June, 8% of the agency’s ratings had a negative outlook and 3% of ratings were assigned a RWN, compared with 4% with a negative outlook and 0.2% on RWN in March 2020.

The rate of increase in negative rating actions hit a historical high of 8.9% in 2Q20 for all structured finance products, excluding RMBS, implying more downgrades are likely. The prior largest jump was 8.4% in 4Q07, which led to an elevated level of downgrades throughout 2008 and 2009.

Ratings downgrades in 1H20 have primarily affected aviation ABS, rental fleet ABS, FFELP student loan ABS, CMBS with exposure to retail and hotels, and RMBS. Through 1H20, no triple-A ratings were downgraded to non-investment grade and no investment-grade ratings became impaired.

In other news…

AFC asset quality highlighted
A new Moody's report suggests that the economic shock caused by the pandemic has highlighted differences in securitised asset quality between foreign-owned and domestic auto finance companies (AFCs) in China. Delinquency rates for auto loan ABS issued by foreign-owned AFCs showed a quicker improvement because of underlying loan quality.

Moody’s notes that for ABS issued by foreign-owned AFCs, borrowers’ incomes are typically higher. Additionally, due to longer operating histories, more customer and credit data is available to foreign-owned AFCs.

Underwriting and loan quality are also impacted by access to consumer finance expertise from overseas. Nevertheless, the performance gap is expected to narrow as a result of economic recovery.

North America
Pradip Ghosh has been appointed as president of Lockton Capital Markets (LCM), working closely with ceo Ken Pierce to provide direction and oversight. Previously, Ghosh was md at Ares Insurance Partners and managing partner at Churchgate Capital Management, as well as holding the role of senior advisor at LCM.

Rapid amortisation event for TGIF WBS
KBRA has downgraded all outstanding ratings on the TGIF Funding whole business securitisation trust to single-B from double-B and removed the watch placement status on the ratings. The rating agency notes that TGI Friday’s continues to be negatively impacted by the effects of the Covid-19 pandemic and other factors, including a shift in consumer preferences and competition from lower-cost alternatives, which has led to declines in system-wide sales (SWS) and the transaction’s DSCR. A rapid amortisation event occurred, as of the payment period ending June 2020, as a result of SWS for the trailing twelve-month period falling below the trigger level of US$1.5bn.