KBRA Releases Research – KBRA-Rated ABS Exposure to Los Angeles Wildfires

KBRA releases research assessing the potential exposure of our rated universe of consumer and commercial asset-backed securities (ABS) to the Los Angeles wildfires, which began on January 7.

While the wildfires' full impact will not be known until they are contained, KBRA currently believes that negative rating actions, if any, will be limited across its universe of more than 1,000 rated ABS transactions. As events continue to unfold, our thoughts remain with the individuals and families affected by these wildfires.

Key Takeaways

• Many consumer ABS transactions have meaningful exposure to California, but KBRA has not observed any transactions or issuers reporting significant exposures to the affected areas in and around Los Angeles County. While KBRA continues to make inquiries with its rated issuers, only one has reported collateral concentration between 1% and 1.5% in zip codes under evacuation orders. All remaining issuers reporting to date have indicated less than 1% of either deal or managed pool concentration in the same area.
• In addition to geographic diversity, ABS consumer transactions benefit from granular assets that help insulate them from events in concentrated areas. Further, based on observations during other natural disasters, KBRA expects that servicers will offer hardship assistance programs, such as payment deferrals and forbearance, to borrowers in need of temporary relief. However, borrowers with low and moderate incomes who are affected may struggle to recover from the hardship and are more likely to roll into delinquency and default.
• For many secured consumer and commercial asset-backed loans, borrowers are typically required to maintain physical damage insurance during the term of the loan, which may result in a prepayment or reduction in loss severity for damaged collateral. However, the degree to which insurance requirements are actively monitored depends on the specific servicer, and there is potential for temporary cash flow disruption.
• Among the many ABS commercial asset classes, those with the greatest potential to be impacted by the wildfires include Property Assessed Clean Energy (PACE), tax lien, data centers, solar lease, and WBS. However, as noted, the exposure to evacuation zones has been relatively small, with current data indicating less than 1% for each of these sectors.

Click here to view the report.

About KBRA

KBRA, one of the major credit rating agencies, is registered in the U.S., EU, and the UK. KBRA is recognized as a Qualified Rating Agency in Taiwan, and is also a Designated Rating Organization for structured finance ratings in Canada. As a full-service credit rating agency, investors can use KBRA ratings for regulatory capital purposes in multiple jurisdictions.

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