...Our study of structured finance rating behaviour shows that the probability of an upgrade or downgrade increases if the prior rating action was the same. This holds over the last 10 years and the longer term (2004 to 2025). Deteriorating ratings generally reflect worsening collateral performance, either due to a weakening macroeconomic environment or issuer-specific factors. Positive rating momentum is frequently triggered by improved collateral performance and a positive macroeconomic backdrop. In addition, most structured finance transactions benefit from the passage of time, as the risk horizon and related forecasting uncertainty reduce and transactions build up credit enhancement. Rating momentum is stronger for non-investment grade ratings as these credits are more sensitive to changes in the credit cycle. The performance of Outlooks in indicating the next rating action is mixed across the whole observation period, but stronger outside periods of crisis. An Outlook generally indicates...
