Sector developments and company hires

CLO outlook updated
Fitch says it expects to change a significant portion of its CLO outlooks to stable from negative, following the revision of its CLO coronavirus stress scenario to assume half of the corporate exposure on negative outlook is downgraded by one notch instead of 100%. Approximately one-third of corporate issuers with loans in CLOs currently have a negative rating outlook. A one-notch downgrade on half of that exposure is equivalent to a 1.5 point increase in the Fitch weighted average rating factor (WARF).

As some transactions have a higher share of issuers on negative outlook and others carry a lower share, the sensitivity analysis will be transaction-specific, thereby considering the actual share on negative outlook for each CLO portfolio. The analysis is based on the current portfolio and focused on a stable interest-rate scenario using all default timing scenarios. Any tranches that show some vulnerability under this scenario will be placed on negative outlook or rating watch negative. Any CLO rating changes will be based on actual rating changes of the underlying corporates as and when these rating downgrades materialise, Fitch states.

For broadly syndicated loan CLOs, all triple-A tranches and the vast majority of other investment grade tranches globally are currently on stable outlook. In contrast, about two-thirds of sub-investment grade tranches are currently on negative outlook, driven by the agency’s previous stress scenario.

Hertz forbearance extended
Hertz auto ABS noteholders and the company have agreed to extend the forbearance arrangement for another nine months through to September 2021. Hertz had complied with the terms laid out in the earlier forbearance agreement, which ended on 15 January, with fleet reduction and depositing the monthly base rental payments totalling US$650m.

Under the new agreement, between now and September, Hertz is required to downsize its fleet by a total of 121,510 vehicles and make the monthly base rental payment of US$84m. In return, ABS noteholders will forgo their rights to seek missed payment and administration claims from June 2020 through September 2021.

Hertz also agreed to provide a general release and will not dispute the concept that the master lease trust is a single indivisible entity, according to JPMorgan ABS strategists.

Manager replacement
Dock Street Capital Management has been appointed as the replacement collateral manager to ABS CDO TABS 2004-1. The deal's previous manager - Ramius Trading Strategies - itself replaced original manager, Tricadia CDO Management, in May 2017. See SCI's CDO Manager Transfer database for more.

Multi-Class model published
Moody's has published a freely available version of its Multi-Class model, which enables users to evaluate a given capital structure for certain ABS and RMBS asset classes. Multi-Class uses portfolio-related assumptions in the form of a portfolio expected loss and a loss equivalent to a Aaa stress to calibrate a lognormal collateral loss distribution. Moody's uses the model to derive the potential losses for the different bonds, taking into consideration the relevant capital structure, and sometimes supplements its modelling with additional analysis of special structural features.

UK auto interest rates eyed
Downward pressure on interest rates in the UK auto market is anticipated, due to increased disclosure requirements and a ban on discretionary commission models that come into effect on 28 January. S&P suggests that the move could compress excess spread and soft credit enhancement across UK auto ABS transactions.

However, underwriting standards should also improve, due to enhanced affordability assessments. “The combination of enhanced affordability assessments and lower interest rates could improve collateral performance, although - from an auto ABS transaction perspective - this is likely to be outweighed by a potentially lower amount of excess spread available to cure defaults, along with the general deterioration in performance we expect as a consequence of the Covid-19 pandemic,” S&P notes.