NEW YORK (S&P Global Ratings) March 17, 2023--U.S. structured finance transactions rated by S&P Global Ratings appear to have minimal exposure to the recent failures of Silicon Valley Bank, Signature Bank, and Silvergate Bank (see the Related Research section for more details).
Based upon our review of our rated portfolio to date:
- Neither Silicon Valley Bank nor Silvergate Bank serves as counterparty to any U.S. structured finance transaction rated by S&P Global Ratings.
- Exposure to Signature Bank is limited to two structured finance transactions: a residential mortgage-backed securities (RMBS) transaction in which Signature Bank serves as a bank account provider, and a variable-rate demand obligation (VRDO) in which Signature Bank provides a letter of credit (LOC).
Signature Bank's Role As Bank Account Provider
Based upon our review to date of our rated portfolio, Signature Bank's role as a bank account provider appears to be limited to one RMBS transaction. Bank account providers, which are not typically publicly named entities within RMBS securitization documents, briefly hold funds prior to disbursement to investors. Due to the degree of reliance on the bank account provider, which acts as an eligible institution for the funds that support our rated transactions, we assess the credit risk related to such entities through the application of our counterparty risk criteria (see "Counterparty Risk Framework: Methodology And Assumptions," published March 8, 2019). We understand that the sponsor of the affected transaction has already taken steps to replace Signature Bank with an alternate bank account provider.
Signature Bank's Role As An LOC provider
Based upon our review to date of our rated portfolio, Signature Bank's role as an LOC provider appears to be limited to one VRDO, for which Signature Bank provides a fronting letter of credit (FLOC). Another unaffected bank provides a confirming letter of credit (CLOC).
The LOCs provide coverage for the bonds during the rated interest-rate mode, during which bondholders may tender their bonds upon providing appropriate notice. As with other similar confirming structures, payments of principal and interest are paid initially from a draw on the FLOC.
Should the FLOC provider dishonor a draw or repudiate the LOC, the trustee is instructed to declare an acceleration and make a single demand on the CLOC to pay full principal and accrued interest. While bondholders typically receive funds from a draw on the FLOC, the document provisions requiring a full payment of principal and interest from the confirming provider result in credit risk being linked to the performance of the CLOC provider. We understand that a bridge bank has stepped in to take over Signature Bank's role as FLOC provider in the exposed transaction.
There have been no structured finance-related rating actions to date in connection with the bank failures. As part of our ongoing surveillance activities, we are monitoring developments in the banking sector that may be relevant to our rated structured finance portfolio.
Related Research
- Economic Research: The Macro Fallout From The Silicon Valley Bank Collapse Appears Limited For Now, March 16, 2023
- Silicon Valley Bank Rating Lowered To 'D' And SVB Financial Group Rating Lowered To 'CC'; Ratings Subsequently Withdrawn, March 10, 2023
This report does not constitute a rating action.
S&P Global Ratings, part of S&P Global Inc. (NYSE: SPGI), is the world's leading provider of independent credit risk research. We publish more than a million credit ratings on debt issued by sovereign, municipal, corporate and financial sector entities. With over 1,400 credit analysts in 26 countries, and more than 150 years' experience of assessing credit risk, we offer a unique combination of global coverage and local insight. Our research and opinions about relative credit risk provide market participants with information that helps to support the growth of transparent, liquid debt markets worldwide.
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