Rating agency Fitch has revealed its proposed new system of rating structured products, originally suggested in April this year.
The agency proposes supplying additional ratings on three aspects of the products: loss given default or loss severity; collateral quality assessment; and rating outlooks.
Fitch said loss severity ratings would allow investors to assess the extent to which a loss would be realised in a tranched security, which current ratings do not predict. Collateral quality measures, which it describes specifically in the context of mortgage-backed securities, would permit them to distinguish between the worth of the structure and its credit enhancements, and the strength of the underlying assets on a five-level scale. And the rating volatility score would reflect the complexity of the structure, the breadth of its underlying market and the reliability of the agency's database - all of which affect the probability of a rapid change in credit rating.
In February this year, Fitch announced a proposed overhaul of its structured product ratings that saw some products take cuts of up to 10 notches; other agencies followed suit with revised scales and methodologies in an attempt to recover the reputation they lost during the onset of the credit crisis.
More on Credit Derivatives
Clearing credit hub closes, with Markit citing disappointing Sef volumes
UBS in Australia sold off CDS portfolio in fixed income scale-back
Fears relationship between credit indexes and constituents becoming more tenuous
A new product could smoothe the gap between capital and accounting rules
Sign up for Risk.net email alerts
Sponsored webinar: IBM Risk Analytics
Nominated for two technology awards
Nominated for post trade technology award
Sponsored webinar: Collateral and counterparty tracking
There are no comments submitted yet. Do you have an interesting opinion? Then be the first to post a comment.