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“Govt unlikely to extend ABS guarantee scheme” says Fitch

Fitch Ratings says that it does not expect the UK Government to extend its asset-backed securities guarantee scheme mainly because structured finance issuers have not used the scheme.

Fitch says it expects market-based solutions to reopen and reinvigorate the residential mortgage backed securities market.

Fitch head of Europe, Middle East and Asia RMBS Gregg Kohansky says: “A market-led solution appears to be emerging following the compression of RMBS spreads in recent months.

“Recent publicly-targeted UK RMBS transactions have included a backstop date as to when debt will be repaid. This structural feature appears to be an important consideration for investors, who are concerned about extension risk in the current environment.”

The UK Government guarantee scheme was launched in April this year and is due to end on Thursday. The Government has kept its options open as to a possible extension of the scheme.

Fitch says there has been no issuance under the scheme because credit default swaps for banks have widened since the start of the banking crisis making the economics unworkable for most originators.  

Fitch head of UK RMBS Alastair Bigley says: “Fitch expects near term public issuance to occur out of existing master trust programmes rather than new stand-alone pass-through transactions. The potentially lower weighted average funding costs for a master trust issuance might make it a more attractive option for issuers, with the added benefit of avoiding the administrative hurdle of creating a new programme.”

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