Payment Holiday Impact on European Structured Finance Performance
Solid Performance in most jurisdictions have not rolled into arrears.
DBRS has published a new commentary on Payment Holiday Impact on European Structured Finance Performance.
After the onset of the Coronavirus Disease (COVID-19) pandemic, many European governments implemented the use of moratoria (payment holidays) and forbearance measures to mitigate the negative economic impact of lockdowns. These measures vary across jurisdictions but have been used mostly to support consumer and small and medium-sized enterprises (SMEs). While helpful to curb certain negative pandemic-related economic outcomes, payment holidays can have negative effects on pools of loans and securitization transactions.
In the commentary, the performance of the European structured finance market across DBRS Morningstar-rated residential mortgage-backed securities (RMBS), asset-backed securities (ABS) and structured credit transactions has been analyzed
The performance has continued to remain solid during the pandemic where the payment holidays in most jurisdictions have not rolled into arrears. DBRS Morningstar has been more positive to the expected performance since Q2 2021 and until today, as highlighted in DBRS Morningstar's Quarterly European Structured Finance Rating Action Summaries, the majority of surveillance rating actions were confirmations in 2020, approximately 20% were upgrades in 2021, and 23% have been upgrades so far in 2022.
The research pointed out what follows:
The level of prepayments across the DBRS Morningstar-rated universe have remained stable for RMBS, on a slightly increasing trend for ABS, especially auto loans in Germany and the UK, and on a similar increasing trend for SME collateralised loan obligation (CLO) transactions.
Payment holidays related to COVID-19 are coming towards an end. In some jurisdictions, borrowers have been more affected by the ending of payment holidays, mainly in the UK, where have we seen an increasing trend in 90+-day arrears for DBRS Morningstar-rated transactions.
There is no clear correlation between payment holidays and prepayments.
Following the withdrawal of support measures, combined with changed economic environments, DBRS Morningstar has not observed a material negative effect as a result of payment moratoriums coming to an end but we have noticed some volatility in arrears.
Link to the commentary
https://www.dbrsmorningstar.com/research/397451