The performance of auto loan securities has been mixed, but Standard & Poor’s Credit Research points out that overall ratings on the ABS have been remarkably stable in spite of the recession.
In a new report on the sector, S & P says that delinquencies and write-downs among certain auto loan ABS, vintage 2007-08, have outstripped the peak losses of 2000-01. Even so, S & P has downgraded only one transaction this year due to collateral performance.
In our view, the weak economy, combined with reduced investor appetite for ABS, has caused many securitizers to curtail loan volume and underwrite loans for borrowers with better credit and at lower advance rates.
Similarly, Fitch Ratings says the robust structures of many auto ABS are allowing them to build “credit enhancement” despite higher losses. In fact, Fitch announced nine upgrades of auto ABS in February.
As for credit card ABS, as many consumers know, issuers are cutting underlying credit lines and increasing rates on existing balances – moves that are preserving credit quality on those securities.
On the other hand, student loan ABS were under considerable rating pressure in February, with Fitch downgrading 56 rated securities.
Overall, downgrades on the long-term ratings reflect the effect of increased funding costs on the transaction due to failed auctions [and]..follow a review of all auction-rate transactions to determine the ability of each to withstand increased funding costs going forward.