OREANDA-NEWS. February 09, 2015. Fitch Ratings says in a new report that European SME CLOs are showing better asset performance than originating banks' loan books. However, it should be noted that SME CLOs' performance may be distorted by repurchase or refinancing of delinquent and defaulted loans or by positive selection common in collateral portfolios.

With this report Fitch is publishing for the first time delinquency indices for select countries based on loan level data (LLD) sourced from the European Data Warehouse (Edwin), which includes Fitch-rated and unrated transactions. The countries covered are Belgium, Italy, Portugal and Spain. The data is the most comprehensive delinquency data set available for European SME transactions.

The number of 90 to 360 days delinquencies as of end-3Q14 across Italian, Portuguese and Spanish SME CLOs averaged 2.9% and were significantly lower than their corresponding arrears at originating banks. Arrears on bank balance sheets vary by country and range from 5% per annum for Italy to 6.5% per annum for Portugal.

In Spain the 90-360 delinquency index between 1Q13 and 3Q14 averaged 1.9% and was significantly lower than 3.8% based on trustee report data relating to mostly Fitch-rated transactions. The difference reflects a larger proportion of pre-crisis transactions in the Fitch-monitored universe whose performance has been worse compared with that of more recent retained transactions as a result of more lax underwriting standards and higher exposure to real estate risk.

In Italy the 90-360 delinquency index during the same period was 4.6% and, excluding defaulted loans, was 3.8%. The same index based on trustee report delinquency data (which are net of defaults) but limited to Italian deals rated by Fitch was 2.5%. Therefore Fitch-rated deals appear to outperform the non-Fitch rated transactions.

Finally in terms of LLD quality, loan records with negative current balances or unexpected high balances were found in Edwin's database. However, data quality has improved over time and these unconventional values were no longer present in more recent pool-cuts.

French, Dutch and German data were excluded from our indices as it was not possible to infer any meaningful performance indication from them; in particular most Dutch and French LLD do not report any delinquencies whereas the corresponding trustee reports do. Moreover, in one of the two German transactions whose data are stored in Edwin, the originator has consistently exercised its option to repurchase defaulted loans.

Contact:

Alessandro Cipolla
Director
+39 02 879 087 238
Fitch Italia S.p.A.
Via Morigi 6
20123 Milan

Laurent Chane-Kon
Senior Director
+44 20 3530 1401

Matthias Neugebauer
Managing Director
+44 20 3530 1099

Media Relations: Athos Larkou, London, Tel: +44 203 530 1549, Email: athos.larkou@fitchratings.com.

Additional information is available on www.fitchratings.com.