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SVB and Signature Bank Failures Expected to Have Minimal Impact on U.S. Structured Finance

Exposure of DBRS Morningstar ratings to Silicon Valley Bank (SVB) and Signature Bank (SB), at the moment, is isolated to the U.S. market, with no impact expected to DBRS Morningstar’s Canadian or European structured finance ratings. Across U.S. commercial mortgage-backed securities, servicers have informed us that there may be some loan level cash management agreements that currently run through either SVB or SB; however, there has not yet been any cash flow disruptions. There is no exposure to SVB or SB across U.S. residential mortgage-backed securities. However, there is some cash management exposure on a couple of U.S. asset-backed securities transactions where SVB serves as a lockbox account bank. Across U.S. structured credit, we expect minimal impact from either bank collapse; however, there is potential exposure at the underlying obligor level, namely middle market borrowers who might have banking relationships with these troubled banks. Typically, these obligors are more established and tend to engage with larger financial institutions.

While market events continue to evolve, cash management issues and the pivotal role that a servicer plays will remain key areas of focus, especially in instances where an underfunded bank may service the loans or act as the lockbox account provide.