Insights

As the pandemic and the resulting containment measures continue to disrupt normal life and business, the structured finance industry faces the possibility of another structural meltdown, just over a decade after the subprime crisis. This time, however, it is a liquidity crisis turning into a credit crisis, and while the cut may not be as deep as it was at the peak of the previous crisis, its impact is much broader and is felt across asset classes and geographies.

The paper assesses asset classes for early signs of worsening credit and its possible impact on structured credit securities. It also discusses some of the operational, legal and data-related challenges that firms playing key roles in the securitisation industry face amid the evolving situation, both on the ground and in terms of policy.

Key Takeaways

• Businesses, individuals and assets are facing earning pressures, resulting in sharp
  spikes in delinquency rates and creating a cash crunch in securitisation deals
• As demand remains unpredictable, critical tasks such as collateral credit evaluation
  and property valuation become challenging
• Changes in consumer behavior will have a medium- to long-term effect on several
  industries, and investors need to be cautious with their portfolio exposures

The author gratefully acknowledges contributions from Chamara Gunetileke, Ramakrishna Reddy, Sunil Parameshwar and Vikram Kumar.


Author

Aditya Arora

Assistant Director, Specialised Solutions

Aditya has over 9 years of experience in securitisation spreads across modelling, valuation, portfolio management and risk analytics. At Acuity Knowledge Partners, he is responsible for managing and developing our Structured Finance offerings. Aditya started his career as a Fixed Income Analyst and has a proven record of setting up and up-scaling analyst teams, facilitating knowledge transfer from onshore locations and enabling development of tech solutions. He is an alumnus of BlackRock, Deloitte and UBS. He is a CFA Charterholder and also holds a master's degree in Management and a bachelor's degree in Technology from the Indian Institute of Information Technology and Management.

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