Moody’s Investors Service strayed from global standards in making its first assessment of Chinese securities backed by auto loans, according to rival Fitch Ratings, which wasn’t awarded the assignment.
The Aa3 grade awarded for the Rongteng Individual Auto Mortgage Backed Securitization 2015-1 “set a precedent that is not in line with international practices,” Fitch said in a statement e-mailed to media. The asset-backed notes, offered by the financing arm of a General Motors Co. venture with SAIC Motor Corp., lack a reserve fund and there are no back-up arrangements in place to meet payment deadlines, it said.
“The transaction structure meets the standards of a domestically rated securitization in China, but it is unusual for an internationally rated transaction assigned such high ratings to be issued without liquidity support,” Fitch said.
Global ratings companies are competing for business from issuers as China, home to Asia’s second-biggest bond market, opens up to foreign investors. Ratings firms earn fees when issuers solicit their credit opinions, and concern that mandates can be awarded in exchange for high grades has been highlighted by U.S. lawmakers who said overly-generous assessments for asset-backed securities were a cause of the 2008 global financial crisis.
“One of our roles is to offer opinions to the market on what we feel constitutes global best practice in the credit ratings industry, particularly for new and developing credit markets such as China,” Helen Wong, Hong Kong-based a senior director in Fitch’s structured finance group and co-author of the report, wrote in an e-mail. “The rating of this particular transaction departs from international standards.”
Moody’s stands by its published views on the Rongteng deal structure, Tim Osborne, the company’s head of communications for the Asia-Pacific region, said in an e-mail. He declined to comment on Fitch’s criticism of the assessment.
Rongteng was the third auto-loan-backed securitization to be graded by an international ratings company. Fitch rated the first two, which were issued by Volkswagen Finance (China) Co. and Ford Automotive Finance (China) Ltd. and awarded AA rankings for the most senior notes. Wai Lun Wan, a spokesperson for Fitch, declined to say whether the company had pitched for the Rongteng deal.
— With assistance by Tian Chen