NEW YORK (S&P Global Ratings) March 17, 2023--U.S. structured finance transactions rated by S&P Global Ratings appear to have minimal exposure to the recent failures of Silicon Valley Bank, Signature Bank, and Silvergate Bank (see the Related Research section for more details).
Based upon our review of our rated portfolio to date:
- Neither Silicon Valley Bank nor Silvergate Bank serves as counterparty to any U.S. structured finance transaction rated by S&P Global Ratings.
- Exposure to Signature Bank is limited to two structured finance transactions: a residential mortgage-backed securities (RMBS) transaction in which Signature Bank serves as a bank account provider, and a variable-rate demand obligation (VRDO) in which Signature Bank provides a letter of credit (LOC).
Signature Bank's Role As Bank Account Provider
Based upon our review to date of our rated portfolio, Signature Bank's role as a bank account provider appears to be limited to one RMBS transaction. Bank account providers, which are not typically publicly named entities within RMBS securitization documents, briefly hold funds prior to disbursement to investors. Due to the degree of reliance on the bank account provider, which acts as an eligible institution for the funds that support our rated transactions, we assess the credit risk related to such entities through the application of our counterparty risk criteria (see "Counterparty Risk Framework: Methodology And Assumptions," published March 8, 2019). We understand that the sponsor of the affected transaction has already taken steps to replace Signature Bank with an alternate bank account provider.
Signature Bank's Role As An LOC provider
Based upon our review to date of our rated portfolio, Signature Bank's role as an LOC provider appears to be limited to one VRDO, for which Signature Bank provides a fronting letter of credit (FLOC). Another unaffected bank provides a confirming letter of credit (CLOC).
The LOCs provide coverage for the bonds during the rated interest-rate mode, during which bondholders may tender their bonds upon providing appropriate notice. As with other similar confirming structures, payments of principal and interest are paid initially from a draw on the FLOC.
Should the FLOC provider dishonor a draw or repudiate the LOC, the trustee is instructed to declare an acceleration and make a single demand on the CLOC to pay full principal and accrued interest. While bondholders typically receive funds from a draw on the FLOC, the document provisions requiring a full payment of principal and interest from the confirming provider result in credit risk being linked to the performance of the CLOC provider. We understand that a bridge bank has stepped in to take over Signature Bank's role as FLOC provider in the exposed transaction.
There have been no structured finance-related rating actions to date in connection with the bank failures. As part of our ongoing surveillance activities, we are monitoring developments in the banking sector that may be relevant to our rated structured finance portfolio.
- Economic Research: The Macro Fallout From The Silicon Valley Bank Collapse Appears Limited For Now, March 16, 2023
- Silicon Valley Bank Rating Lowered To 'D' And SVB Financial Group Rating Lowered To 'CC'; Ratings Subsequently Withdrawn, March 10, 2023
This report does not constitute a rating action.
S&P Global Ratings, part of S&P Global Inc. (NYSE: SPGI), is the world's leading provider of independent credit risk research. We publish more than a million credit ratings on debt issued by sovereign, municipal, corporate and financial sector entities. With over 1,400 credit analysts in 26 countries, and more than 150 years' experience of assessing credit risk, we offer a unique combination of global coverage and local insight. Our research and opinions about relative credit risk provide market participants with information that helps to support the growth of transparent, liquid debt markets worldwide.
|Primary Contacts:||James T Taylor, New York + 1 (212) 438 6067;|
|Alexander J Gombach, New York + 1 (212) 438 2882;|
|Research Contact:||Tom Schopflocher, New York + 1 (212) 438 6722;|
|Media Contact:||Jeff Sexton, New York + 1 (212) 438 3448;|
No content (including ratings, credit-related analyses and data, valuations, model, software, or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced, or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor’s Financial Services LLC or its affiliates (collectively, S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their directors, officers, shareholders, employees, or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness, or availability of the Content. S&P Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an “as is” basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT’S FUNCTIONING WILL BE UNINTERRUPTED, OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages.
Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact. S&P’s opinions, analyses, and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment, and experience of the user, its management, employees, advisors, and/or clients when making investment and other business decisions. S&P does not act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. Rating-related publications may be published for a variety of reasons that are not necessarily dependent on action by rating committees, including, but not limited to, the publication of a periodic update on a credit rating and related analyses.
To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&P reserves the right to assign, withdraw, or suspend such acknowledgement at any time and in its sole discretion. S&P Parties disclaim any duty whatsoever arising out of the assignment, withdrawal, or suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof.
S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain nonpublic information received in connection with each analytical process.
S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, www.spglobal.com/ratings (free of charge), and www.ratingsdirect.com (subscription), and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available at www.spglobal.com/usratingsfees.