Currently many ABS in stressed economies are constrained by the rating of the corresponding sovereign. The rationale put forward by rating agencies is that there are immitigable risks that affect all issuers and assets in a particular country, above all the sovereign. As regards calibration, some quantitative and many qualitative factors are taken into account by the agencies when setting this ceiling.
Yet, I question whether this ceiling is appropriate. For example, I am not aware of any defaults on Greek RMBS or ABS transactions, despite the partial sovereign debt exchange in 2012. Or, in Italy, the vast majority of RMBSs appear to be constrained by the sovereign ceiling despite an average of 25% current credit enhancement.