The credit outlook for Canadian asset-backed commercial paper (ABCP) is strong, says Moody’s Investors Service in a new report.
The rating agency said Wednesda that the outlook for the credit quality of Canadian ABCP programs is strong, for two reasons: the robust credit quality of the funded assets, and the stable credit quality of the banks providing liquidity support.
Moody’s also forecasts that ABCP issuance in Canada will remain about the same in 2013 as in 2012, as the increase in new transactions is offset by the termination and amortization of older ones. “The credit quality of new transactions will be of the same high investment-grade quality as that of existing transactions,” it adds.
As for the rest of the global ABCP market, Moody’s is less positive. It says the credit quality of US programs will be stable in 2013, while bank and sovereign risk will remain a critical issue for European ABCP programs.
Regulatory uncertainty will also remain an issue in both the United States and Europe, and issuance will grow little, if at all, it suggests. Moody’s notes that the regulatory environment in the US remains in flux, and that uncertainty is likely to be a drag on issuance volume. Whereas in Europe, new EU regulations could increase the costs of supporting or operating programs, and banks may find achieving the liquidity coverage ratio a challenge in a stressed market, it says.
Moody’s says it believes that ABCP issuance in the US could stabilize in 2013, albeit below current levels, following the long decline that began in 2007. “Several sponsors expanded their programs in 2012 and new business from banks active in the market will offset any declines,” it says.
Whereas, it expect issuance in Europe will be lower due to regulatory issues, a lack of demand, program terminations, and the consolidation of bank-sponsored programs.