Fitch Exposure Draft: Interest Rate Risk in Structured Transactions for USD LIBOR.

NEW YORK -- Changes in interest rates will play an increasingly significant role in how U.S. structured finance securities perform not only as rates continue to rise, but also when they inevitably fall again, according to Fitch Ratings, who has proposed new structured finance interest rate stress criteria.

'Fitch's proposed methodology is much more sensitive to changing market conditions. The goal being to reflect market expectations about future interest rate trends while incorporating sufficient conservatism to protect investors against larger and unexpected rate changes,' said Ahmet Kocagil, Managing Director, QFR, Fitch Ratings. 'While the new methodology is applicable to a variety of securitization structures, CDO and subprime RMBS are notable because of the risk that arises from mismatches between asset and liability coupon rates.'

Fitch will also project falling interest rate scenarios to gauge the sometimes complex interactions of excess interest, swaps and other derivatives. 'The use of derivatives within structures to mitigate rising rate risk can create overhedging in a falling interest rate environment, which makes analyzing falling rate scenarios all the more vital,' said Kocagil.

Fitch is soliciting market comment on its proposed interest rate methodology exposure draft for a one-month period before making their criteria official. 'Interest Rate Risk In Structured Finance Transactions for USD LIBOR' is available on the Fitch Ratings web site at www.fitchratings.com.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.