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Structured Finance & Covered Bonds

Evaluating default probability and expected loss in a European context

Scope offers a reliable European alternative to the existing credit agencies in the fields of securitisation, structured finance and covered bonds.

Our approach emphasises fundamental analysis of underlying assets in the European context, forward-looking views on economic cycles, no mechanistic links to sovereign credit quality, and a post-crisis approach to counterparty risk analysis.

Scope provides larger credit differentiation because we use a fundamental bottom-up analysis to capture the rating impact of different asset, portfolio or structure characteristics and we avoid the application of one-size-fits-all assumptions. At the same time, we take into account the context of the originator and the relevant jurisdiction. In particular, we analyse securitisations in a European context, applying our knowledge of the local market and specific product.

Scope ratings incorporate an analysis of counterparty risks that builds on post-crisis realities, covering the new regulatory and supervisory framework for banks—such as resolution regimes and bail-in or stronger prudential metrics—and the resulting lower likelihood of jump-to-default scenarios for banks.

In addition, Scope does not mechanistically limit the maximum achievable rating of a securitisation as a function of the credit quality of the country of the issuer or the securitised assets.

  • Scope develops in-depth methodologies specific to major asset classes of structured finance and structured credit, including RMBS, CMBS, Auto ABS, Consumer ABS, Project Finance ABS, Trade Receivables, Credit Card ABS, ABCP, SME CLO, Corporate CLO, Leveraged-Loan CLO, as well as other securitisations of esoteric collateral.
  • Scope rates securitisation products such as debt instruments generally issued through a bankruptcy-remote special purpose vehicle and secured by one or more cash-flow generating assets. Securitised assets range from real assets like real estate, movable property (trains, aircrafts or ships) or infrastructure and other project-finance ventures to portfolios of credit rights in the form of loan or leasing contracts.
  • Scope’s covered bond ratings reflect the credit strength of the issuer bank and the additional fundamental credit support provided by the supporting legal frameworks and the preferential treatment of covered bonds upon bank resolution. Our analysis is issuer specific and provides insight into the robustness of the cover pool, which generally allows for additional credit differentiation.

Scope’s long-term ratings provide a forward-looking opinion on the relative credit risks of these debt instruments. The ratings reflect the expected loss associated with the payments contractually promised by the rated instrument by its legal maturity.

"Scope’s analysis of Structured Finance instruments focuses on an in-depth assessment of underlying collateral risks, counterparty risks and structural risks. The analysis of qualitative factors plays a crucial role in assigning a structured finance rating".
Guillaume Jolivet – Managing Director, Head of Structured Finance.