Payment Holiday Impact on European Structured Finance Performance

Following the end of most government support measures related to the Coronavirus Disease (COVID-19), we look into the performance of DBRS Morningstar-rated residential mortgage-backed securities (RMBS), asset-backed securities (ABS), and structured credit transactions across several jurisdictions based on the observed transaction performance to date.

Key highlights include:
-- The level of prepayments across the DBRS Morningstar-rated universe have remained stable for RMBS, on a slightly increasing trend for ABS, and on a similar increasing trend for SME collateralised loan obligation transactions.
-- In some jurisdictions, borrowers have been more affected by the ending of payment holidays, mainly in the UK, where have we seen an increasing trend in 90+-day arrears for DBRS Morningstar-rated transactions.
-- Following the withdrawal of support measures, combined with changed economic environments, DBRS Morningstar has not observed a material negative effect as a result of payment moratoriums coming to an end but we have noticed some volatility in arrears.

“Two years into the pandemic, DBRS Morningstar noticed that as many of the coronavirus-related payment holidays have ended, we still observe a strong performance where most transactions are already performing at levels prior to the pandemic,” said Preben Cornelius Overas, Senior Analyst of European Surveillance.