Ratings outlook for asset-backed commercial paper stable

The ratings outlook for asset-backed commercial paper (ABCP) ratings in Europe, the Middle East and Africa (Emea) in 2010 remains largely stable, says Moody's Investors Service in its 2009 Review and 2010 Outlook report for the sector.

This is based on the strong structural support and high levels of enhancement provided to conduits and conduit transactions and on the systemic support currently underpinning much of the banking system in the region.

However, any removal of the systemic support currently provided to the Emea banking system could impact bank sector ratings further and any downgrade of the Prime-1 rating of a conduit sponsor or liquidity provider would have a direct impact on the Prime-1 rating of the related conduit's ABCP.

The credit outlook for Emea ABCP remains negative due to the impact of the general economic climate on the performance of conduit assets and the prospect of continued pressure on the long-term ratings and bank financial strength ratings (BFSRs) of conduit sponsors/liquidity banks.

"Issuance levels will likely continue to decline over the year, as a result of the impact of general economic conditions on both originators and conduit sponsors together with uncertainties in the securitisation markets as a result of proposed regulatory changes," said Rachael Purchas, a Moody's Assistant Vice President – Analyst and co-author of the report.

"Furthermore, the issuance will continue to be tied to the general well-being of the European and US economies and Moody's does not expect to see an uplift until economic conditions improve and stabilise in the long term."

In its review of 2009, Moody's says that following a volatile second half of 2008, the ABCP market in Emea gradually stabilised during 2009. "Funding conditions became more favourable and there was a slight resurgence of interest in ABCP as an investment product by money market fund investors," said Purchas. "However, the trend for issuance in the US commercial paper market by Emea conduits intensified in 2009 as it became clear that the Euro commercial paper market was less robust than its US counterpart."

Overall, the rating agency says that issuance levels were still in decline for Emea conduits across both markets as conduit sponsors and originators continued to feel the effects of the global economic downturn.

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