Fitch Ratings Gauges RMBS Recovery Rates

The downturn in the financial markets has led to the broad-based slashing of credit default ratings for many assets. But some of these investments have the potential to continue to generate cash flow now and in the future. To guide investors on the prospect of a distressed asset’s recovery, Fitch Ratings has a “Recovery Rating,” (RR) to complement its traditional rating system. Fitch uses a scale of one to six for its recovery rates for all bonds rated at triple-C or below or more than 21,000 US RMBS. Former investment-grade residential mortgage-backed securitizations (RMBS) with the same downgraded credit default rating may have different likelihoods of recovering. While distressed, the principal and interest recoveries on some assets can be substantial, Fitch said. Write to Austin Kilgore.

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