Fitch Ratings: 'No-deal' Brexit unlikely to pose risk to EU27 structured finance transactions with UK swaps

Fitch Ratings says it does not expect a 'no-deal' Brexit to lead to downgrades for the roughly 90 EU27 Structured Finance (SF) transactions that continue to have swaps with UK counterparties. 

• "A no-deal Brexit is still possible and the general election in the UK tomorrow may not lead to clarity on whether it will be avoided at the end of either January 2020 or any transition period.
• Swaps with UK counterparties would not become void following Brexit and counterparties should continue to perform under the existing contracts, which, in the case of SF transactions, are rarely amended post-closing. However, if UK counterparties lack the necessary contingency national licences to amend contracts following certain 'lifecycle' events in the event of a no-deal Brexit, the contract may need to be novated to an EU27 counterparty. The contingency arrangements are still evolving and must be reviewed individually on a trade and country basis, as the scope of measures varies across jurisdictions.
• Many counterparties have already novated or effected a Part VII transfer of their swaps to new or existing EU27 entities that are part of the same banking group. Should swaps that are essential for the operation of an SF transaction not be novated ahead of or shortly after a no-deal Brexit, SF rating downgrades could occur if an amendment is needed and if novation to an EU27 entity does not occur to make this possible."