Standard & Poor's recent downgrade of Dutch merchant bank NIB Capital's short-term rating may have a knock-on effect on eight transactions totaling €5.5 billion of asset-backed bonds, underscoring a risk peculiar to European sales. NIBC is not only a prominent originator and arranger in the Dutch securitization market, but also acts as cash account manager, liquidity facility provider and swap counterparty on numerous transactions.
While in the U.S. many ABS issuers are triple-B rated and therefore enlist highly rated third parties to handle ongoing structural aspects of their securitizations, in Europe most issuers are highly rated and perform swap counterparty and servicing roles themselves. As a result, in cases like NIBC's, a highly rated lender's downgrade affects deals beyond just what it has sold, because the S&P downgrade triggers certain provisions in vehicles where it serves a variety of counterparty functions.
Given NIBC's prominence in the market, the bank and S&P will likely agree on an acceptable solution to avoid impacting the deals, said Sean Hannigan, associate in surveillance at S&P in London. A potential solution: NIBC could post a certain amount of collateral to continue acting as currency swap counterparty.
NIBC's securitization team is committed to resolving the dilemma as soon as possible, said Maurice Jongmans, associate director in The Hague. The residential mortgage-backed, commercial mortgage-backed, shipping loan-backed deals and collateralized loan obligations impacted are STReAM, Dutch MBS XI, Monastery 2004, Latitude, KFN Office, North Westerly I and II, and Provide Orange.