This comes via Angus Robertson of Research Recap:
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.
If you recall, I recently posted some updates via Angus on the Prime RMBS market and on Leveraged Loans. Both of these forecasts were very downbeat in contrast to this update on auto loans. Credit card charge-offs are at multi-decade highs and commercial real estate is getting hammered (see my posts here and here).
All of which is to say that auto loans look the best of the asset-backed security lot. There are many more ABS writedowns coming due in 2009, which will impair bank balance sheets even more. At a minimum, however, the auto loan update is the first bit of positive news on the ABS market that we have heard in a while.