Toxic tag attached to synthetic securitisation is also exaggerated
More specifically, the toxic tag attached to synthetic securitisation is also
exaggerated. Chart 11 details life-time default rates for balance sheet and
arbitrage synthetic securitisations as of 2014.
The former performed vastly
better than the latter for all ratings. On aggregate, the average default rate for
investment-grade (IG) balance sheet deals was only 2% versus 13% for
arbitrage deals. This compares. To a default rate of 3.4% for – true-sale –
European ABSs in the same year (IG and high-yield combined), for example.
Against this backdrop, balance sheet synthetic securitisations do not necessarily
perform worse than true-sale securitisations.
EU Forecast
euf:ba1.8i:166/nws-01