Moody's: Asian Structured Finance 2009 Review & 2010 Outlook

Despite challenges, cross-border issuance likely to revive as market improves in 2010


Moody's Investors Service says in a new report that issuance in the Asian structured finance market will rise moderately in 2010, as investor interest makes a comeback, and the price gap between investors and sponsors narrows.
"The performance outlook for Korean RMBS and auto loan ABS is stable.

Korean residential mortgage loans have a recovery rate of over 99%, while the performance of Korean auto loans has been stable, with no marked deterioration during the credit crisis," says Jerome Cheng, a Moody's Vice President and author of the report.

"The performance outlook for Korean credit card ABS and Singaporean CMBS is negative. The negative outlook on Korean credit card receivables is based on potential deterioration in cardholders' payment ability. Korean household debt is at an all-time high, and a rise in interest rates would
hurt cardholders' ability to pay down unsecured credit card receivables.

For commercial properties in Singapore, the oversupply of office and industrial space and a weak economy are adding pressure to both vacancy and rental rates," says Mr. Cheng.

However, Moody's sees no rating implications on the rated transactions due to asset performance. "Given the level of subordination and the structural mechanisms present, we do not expect any rating actions, even for the two asset classes on which we have a negative outlook," says Mr. Cheng.

In its outlook for activities in 2010, the rating agency says that Korea, the largest securitization market in this region, will issue some cross-border ABS, RMBS, and covered bond transactions. Investor interest is evident, given that Korean receivables did not deteriorate much during the crisis. Rather, they have all improved, as Korea's economy started to improve.

In its review of 2009, Moody's notes that the fallout from the credit crunch significantly impacted the issuance from the Asian structured finance market -- with the exceptions of the domestic markets in Korea and India.

Korea's domestic and cross-border issuance in 2009 was USD33.0 billion, 87.6% of the region's total USD37.7 billion issuance. Korea's domestic market was dominated by project finance securitizations and RMBS, while its cross-border market generated all the foreign currency-denominated issuance in the region, including Asia's first covered bond transaction.

Moody's rating actions in 2009 were mainly downgrades related to changes in counterparty ratings and the change in Korea's local currency bond ceiling. "The downgrades were not driven by pformance deterioration in the underlying receivables. If anything, the performance of these receivables is well within our expectations," explains Mr. Cheng.

Moody's also changed its assumptions for three transactions, as perceived levels of risk increased. Two of them are deferred payment transactions in Singapore where the underlying residential property buyers' default risk had increased and the property values had declined. The third one is a Real Estate Investment Trust (REIT) in Taiwan where the REIT had acquired a new property through increased leverage. The ratings of these three transactions were subsequently downgraded.

The report discusses Moody's expectations for the Asian structured inance market in 2010, examines the outlook for cross-border Korean RMBS and ABS and Singaporean CMBS, summarizes issuance activities in 2009, and discusses collateral performance and the rating downgrades in
2009.

The report, "Asian Structured Finance: 2009 Review and 2010 Outlook" can be accessed at www.moodys.com.