Thursday, February 12, 2009

Fitch Launches Enhanced Presale Reports for Structured Finance

Fitch Ratings today announced the launch of enhanced presale and new issue reports for global structured finance transactions. The principal aim of the revised reports is to increase their focus on Fitch's opinions with respect to key rating drivers. They will include new content which will provide greater transparency regarding how a rating opinion was formed and the impact on such opinion of any changes in key assumptions.

The reports also aim to create one consistent template framework across structured finance asset classes which will aid comparison of risk characteristics across countries and sectors. These changes also reflect widespread industry and regulator comments regarding the need for greater transparency in structured finance transactions.

The revised reports will be adopted throughout the course of 2009, as individual asset class groups finalise the specific content for their area. The first asset groups will start to use new templates for all new transactions as from 16 February 2009.

"Fitch's overriding aim for the revised reports is to enhance transparency of the rating opinion. Fitch's view of key rating drivers will be described more succinctly with a greater focus on key areas of discussion during the rating committee. Reports will also describe the data requested and received from originators and how this was used in the analysis," said Andreas Wilgen, Senior Director in Fitch's EMEA Structured Finance team, who co-ordinated the project to revise the reports. "With increased focus upon model risk in structured finance generally, the reports will describe which models have been used in the analysis, the models' main drivers and any 'out-of-model' adjustments that might have been applied by rating committee."

A new aspect to the reports will be an analysis of the sensitivity of ratings to changes in key rating assumptions. The final form of such analysis will be specified throughout the course of 2009 for the different asset classes. Example enhancements include an analysis of changes to key assumptions which could result in rating migration from the current note rating.

Additionally, a breakeven point analysis will be introduced to identify the maximum stress to a key rating factor (for example mortgage foreclosures for RMBS) a given tranche can withstand without experiencing a default.

Fitch will value any feedback from report users as to the changes made to the reports following their launch.

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