OREANDA-NEWS. Fitch Ratings has updated its global rating criteria for collateralised debt obligations backed by loans to small- and medium-sized enterprises (SMEs). The report replaces the existing "Criteria for Rating Granular Corporate Balance-Sheet Securitisations (SME CLOs)", dated 6 March 2015. The updated assumptions are not expected to have an impact on existing SME CLOs.

Fitch has lowered the average annual default rate expectation for Spain to 4.5% from 5.0% and for Germany to 1.75% from 2.5%. The decrease in the two benchmarks reflects improvements in the performance of their respective SME lending sectors. Additionally, in the case of Spain, the revision is also driven by the declining importance of the real estate and construction sectors in the country's overall lending mix. The 4.5% benchmark for Spain is the annual default rate across all economic sectors, including the real estate and construction sector.

Fitch has also simplified its cash flow modelling assumptions for SME CLOs by only modelling defaults that will ultimately result in foreclosure.

The updated criteria clarify also the agency's expectations on the originating banks' historical data, the data expected for assigning rating in countries without a Fitch country benchmark, and Fitch's approach to reviewing vintage SME CLOs with no available bank internal rating data..

The updated criteria report is available at www.fitchratings.com and describes Fitch's methodology for analysing collateralised loan obligations backed by secured and unsecured performing SME loans to companies that generates revenues from operating businesses rather than investments. Fitch may also apply the criteria to analyse portfolios of non-SME corporate loans and leases. The criteria report does not apply to portfolios with significant portions of non-recourse lending or loans to obligors whose business model depends on subsidies.