The SEC’s Office of Credit Ratings is exploring how it can address conflicts of interest in ratings of MBS and ABS. An increase in performance-related disclosures and boosting unsolicited ratings are being considered.
JPMorgan Chase has issued its first ABS transaction backed by credit card receivables through Chase Issuance Trust since May 2018. A wildcard to the deal, however, is a pending lawsuit involving the issuance trust.
The SEC is facing pressure to address “ratings shopping” in the MBS and ABS markets. Big rating services are not keen to switch from the issuer-pays model.
The coronavirus outbreak may strike little-known pandemic bonds issued by the World Bank in 2017. Travel restrictions in response to the outbreak may also impact ABS backed by aircraft leases.
Issuance of aircraft-related ABS is expected to shoot up in the coming years but industry analysts are warning about potential performance issues. Fitch said it’s taking a cautious approach to rating new deals.
Issuance of marketplace lending ABS is expected to increase slightly, led by optimism in the economy and improved underwriting criteria, according to rating services.
Fitch warned this week that other rating services are "overstating" the benefits of the structures on whole-business securitizations. The warning comes on the heels of a report from Moody's which carried a positive outlook for the sector.
An SEC committee hosted a panel discussion in November regarding the compensation model for rating services. The regulator hasn't made a decision on whether reforms are needed to the issuer-pays model.
Fitch is including environmental, social and governance relevance scores as part of its ratings of securitized products. The scores help assess sustainability and ethics though they aren’t a major factor in credit ratings.
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