NEW YORK — The recession has had a negative impact on almost all subprime auto asset-backed securities issuers; however, overall, the market appears to be staying on track, according to U.S. Structured Finance.

Officials said the economic downturn has resulted in "widespread deterioration of collateral performance and an increasingly challenging operating environment."

However, on the positive side, DBRS said it "has observed that only one outstanding public subprime auto transaction has both drawn on credit enhancement and not yet replenished the draw with excess spread. On all other outstanding subprime auto ABS transactions, any enhancement draws, which are not uncommon for the sector, have been replenished and enhancement has built up over time."

The company went on to explain that the majority of subprime auto transactions executed in the public and 114A markets have been wrapped by monoline bond insurance policies, with very few structured as traditional senior-subordinate trusts.

"Many of the monoline wrapped transactions have been downgraded to reflect the downgrades of the insurance providers. However, in most cases, to date, the credit enhancement structured into the dealers below the wraps has been sufficient to protect bondholders from interest or principal shortfalls," officials indicated.

Usually, loan defaults are adequately covered by excess spread and then other forms of credit protection, DBRS noted. In fact, many include triggers that force an increase in credit enhancement.

"These triggers are often based on the performance of a lender's portfolio, as well as on the performance of a particular securitization. The triggers are frequently linked to average three-month delinquency rates and cumulative gross or net loss rates. Of the more than 80 transactions reviewed by DBRS, which include over 1,400 triggers, nearly 88 percent of the triggers have not been breached and only roughly 12 percent had failed," officials stressed.

Meanwhile, some subprime ABS issuers have left the business or scaled back as a result of lack of liquidity and tighter underwriting standards. This has led to lower volume and more selective business practices, which DBRS said it believes will help the survivors "benefit from proactive liquidity management and planning and better performing loan pools going forward."

"This circumstance may lead to improved performance in future pools of subprime auto loans and, possibly, lower credit enhancement relative to past deals," officials stated. "These circumstances may also lead to an increase in subprime auto ABS issuance in the future."