What is a structured finance rating?
The market for structured finance ratings represent an important refinancing opportunity for banks and other financial institutions. The term structured finance describes the financing that is composed of several elements. Often, individual financial assets are bundled and transferred into a special purpose vehicle, which issues liabilities for refinancing of these assets. These liabilities are issued in form of structured tranches, which are prioritized regarding a cash flow waterfall and are therefore ranking subordinated or senior to one another.
What asset classes does Creditreform Rating cover?
Our structured finance ratings are highly respected in the market and range from traditional securitization structures to new developments within the structured finance markets. We offer our clients ratings in the following areas:
- Auto ABS
- Consumer ABS
- Commercial mortgage-backed securities (CMBS)
- Residential mortgage-backed securities (RMBS)
- Credit-linked notes (CLN)
- Small and medium-sized enterprises collateralized loan obligation (SME CLO)
Rating process of structured finance ratings
The rating process combines both qualitative and quantitative analysis. Starting with the analysis of legal frameworks, structural features and counterparty risks as well as general operating risk, the credit and portfolio risks are analyzed in a cash flow model. Using standardized methods and scenario analyses, such as Monte Carlo simulations, transaction cash flows are evaluated - including stressed scenario assumptions – resulting in a credit risk assessment of individual tranches and classes of an issue. The final rating combines the results of both, quantitative and qualitative analysis.
The following diagram illustrates a typical transaction structure: