OREANDA-NEWS. March 23, 2016. According to a new special report, Fitch Ratings expects adverse macroeconomic conditions to further impact credit quality of Brazilian structured finance (SF) in 2016. The economic recession, high interest rates, low commodity prices and other related issues affect transaction classes in different ways.

Sovereign downgrades coupled with lower commodity prices and increasing counterparty risks were key factors driving SF rating actions in 2015. Downgrade to upgrade ratios within the SF portfolio reached a historically high level of 7:1 during 2015. Approximately 31% of Fitch's Brazilian SF portfolio has been assigned a Negative Outlook in January 2016 compared to only 17% a year earlier. Fitch believes this overall downgrade to upgrade ratio will remain relatively high.

Credit linked CMBS and other credits linked to the rating of corporates are directly affected by their many downgrades, which outpaced upgrades by 4.4-1 in 2015. This ratio is expected to increase to 10-1 in 2016 in view of the severe operating cash flow crisis that many Brazilian corporates suffer, the credit squeeze companies face and deteriorating financial profiles. Transactions linked to credit profile of homebuilders and agribusiness have suffered most.

Consumer ABS and RMBS, on the other hand, are expected to be mostly resilient to rising unemployment, high inflation and lower disposable incomes, helped by conservative underwriting criteria, loan characteristics, and transaction structures.

The full report 'Brazilian Structured Finance: What Key Macro Issues will Drive Performance?' is available at www.fitchratings.com.