The Covid-19 outbreak has led to some lenders across Europe putting in forbearance measures if borrowers are struggling financially. But RMBS typically have structural features that cover for cash flow disruption.

However, extended periods of reduced cash collections could change the rating agency’s assessment depending on the structural features of specific transactions.

The rate of spread and timing of the peak of COVID-19 is unknown but modelling by academics with expertise in epidemiology indicates a likely range for the peak of up to June 2020.

S&P said for the purpose of assessing the economic and credit implications, it is assuming the global outbreak will subside during the second quarter of 2020, consistent with its recent report “Global Credit Conditions: COVID-19’s Darkening Shadow,” published on March 3, 2020.

The government in Italy has declared that borrowers can request a suspension of loan payments until the end of the COVID-19 emergency if they are financially impacted. Banks are obliged to inform eligible borrowers about their right to such payment suspensions by the end of March. If banks do not provide this information, payments will be suspended until mid-November.

SMEs can ask for a 12-month suspension of the full loan installments due in 2020 for some subsidised loans granted by a public entity (Invitalia) to help investment in business development. The government measures also include a temporary stop on tax payments due, and a state guarantee of up to 80% of SME loans for 12 months.

The potential impact on Italian RMBS will partly depend on which borrowers are eligible, ranging from all borrowers to just those that have suffered demonstrable financial hardship due to the health emergency.

S&P has calculated that most Italian RMBS transactions that it rates have cash reserves or liquidity facilities that would cover at least two years of senior expenses and note coupons at current interest rates.

If such measures were to be taken in other countries with outstanding RMBS transactions, the situation would be similar. Structured finance transactions generally have structural features to cover liquidity shortfalls. However, the period with reduced collections that those structural features could bridge is transaction-specific and can vary significantly.