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Structured finance securitization continues to contribute a significant share of funding to the US economy, and performance of transactions since 2009 has matched expectations as measured by ratings, according to two new reports from Moody's Investors Service.
US businesses turned to collateralized loan obligations (CLOs) and commercial mortgage-backed securities (CMBS) for $208 billion worth of capital and liquidity in 2014. Together, CLOs and CMBS, which help fund bank loans to commercial enterprises and commercial real estate properties, represented nearly half of US securitization volume in 2014, according to the report "Securitization Provides Meaningful Funding to the US Economy."
"The virtual disappearance of the private-label RMBS market, coupled with the replacement of FFELP with a direct Federal lending product, has led to a reduction in securitization's relative share of annual capital market issuance from 48% in 2007 to 30% in 2014, and contributed to a 200% increase in annual Treasury bond issuance over that same period," says Jim Ahern, head of Moody's Americas structured finance ratings.
Although securitization represented only $1.6 trillion of the roughly $6 trillion in US bond issuance in 2014, structured finance issuance has been on the rise globally over the past five years, according to a separate report, "Post 2008 SF Performance -- Investment Grade Tranches See No Impairment." Moody's rated 2,268 new issues in 2013, almost double the 2009 level, but down from the peak of 28,781 issues rated in 2006.
Furthermore, none of the structured finance debt that Moody's rated investment grade in the past seven years has become impaired, contributing to the strong and stable credit quality of structured finance issuance across all asset classes, says the rating company.
In its study of impairments and ratings actions for the period 2009 through June 2014, Moody's finds that of the more than 10,000 rated structured finance issues rated between January 2009 and June 2014, only nine non-investment grade tranches became impaired.
"The accuracy of Moody's ratings for global SF issuance over the past eight years, as measured by the average position of impairments, is above 98%," says Moody's Senior Vice President Kumar Kanthan.
Moody's Aaa ratings of SF over the same timeframe have been quite stable, with an average 12-month stability rate of 96.0%. For ratings other than Aaa, there has been more upward than downward movement for SF issuance.
