NEW YORK (S&P Global Ratings) Sept. 21, 2021--The overall credit quality of European structured finance transactions deteriorated in 2020, after four years of impressive credit performance, said S&P Global Ratings today in its "2020 Annual European Structured Finance Default And Rating Transition Study."
Although credit quality weakened, just eight defaults were reported for European structured finance in 2020, resulting in a lower annual default rate of 0.24%. The eight defaults were limited to the commercial mortgage-backed securities (CMBS) and structured credit sectors. The downgrade rate rose to 3.6% in 2020 from 1.6% in 2019, while the upgrade rate fell sharply to 4.8% from a historical high of 20.1%.
The average change in credit quality fell to +0.04 notches by the end of December 2020. This metric has been positive since the end of 2015, indicating that ratings have been drifting higher on average over this period. However, after reaching a historical high of +0.37 notches in 2019, the metric sharply declined in 2020, indicating that ratings have drifted lower over the past year.
Credit quality diverged across many of the regions and sectors within Europe. Deterioration in performance was most pronounced in areas hardest hit by the economic and health restrictions related to the pandemic, specifically CMBS. The credit performance of European residential mortgage-backed securities (RMBS) was among the strongest sector in 2020. The upgrade rate for RMBS was 7.9%, and though this was the highest of any sector for the year, it was a sharp decline from 37.6% in 2019.
The default rates in every sector remained below one-year averages.
This report does not constitute a rating action.
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| Ratings Performance Analytics: | Nick W Kraemer, FRM, New York + 1 (212) 438 1698; nick.kraemer@spglobal.com |
| Kirsten R Mccabe, New York + 1 (212) 438 3196; kirsten.mccabe@spglobal.com | |
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