Fitch: ’08 Subprime Auto ABS Issuance Crashed; Floor Plan ABS Shut Out of Market
NEW YORK — In its latest report, in addition to looking at the significant performance decline in the overall auto asset-backed securities market, Fitch Ratings said that auto-related ABS, including auto loans, lease/rental, floor plan, motorcycle and truck loans, showed a 40-percent decline in 2008 over 2007.
In fact, the level of issuance dropped to its lowest level of more than seven years, according to the company.
"Issuance fell victim to the frozen credit markets in 2008, particularly during the last quarter of the year, along with the declining U.S. economy and falling auto sales," officials indicated.
"The third quarter saw only five transactions issued versus 13 and 24 issued in 2007 and 2008, respectively," they continued. "In total, only 39 transactions came to market in 2008, compared with 74 in 2007."
Breaking it down, Fitch said prime auto loan ABS came in at $38.4 billion for the year, up 9.8 percent from 2007, making up 86 percent of all issuance compared to just 47 percent in the prior year.
On the other hand, the company reported that "Subprime auto loans ABS saw issuance crash to just $3.7 billion in 2008, plunging 81 percent over 2007."
Furthermore, executives pointed out, "There was no dealer floor plan ABS sold in 2008, and this sector was shut out of the market totally, and only one motorcycle and truck loan transaction issued. Auto lease/rental ABS hit $2.2 billion in issuance in 2008, a 75-percent drop over 2007 level."
Looking at overall performance, Fitch pointed to trends which many in the industry witnessed.
"The performance of auto loan ABS performance declined significantly in 2008, as the U.S. economy slid into a recession, with the housing and job markets slumping and the credit crisis taking a firm grip on most sectors of the economy, including the automobile industry," officials wrote in their report.
Basically, both frequency and loss severity broke down performance in 2008, which Fitch said drove losses higher across the spectrum of ABS transactions.
"The weakening state of the U.S. manufacturers throughout 2008 contributed to concerns surrounding their bankruptcy," according to the company. "Furthermore, concerns surround their auto ABS transactions, including underwriting and servicing of certain pools, along with declining vehicle recovery values."
The wholesale market was also clearly pressured during the year, which ultimately pushed loss severity of auto ABS even higher.
However, on a positive note, executives said, "Rating performance has for the majority of prime auto ABS held up well, with only a handful of negative rating actions issued by Fitch in 2008. Positive rating actions continued to be issued throughout 2008, but understandably on a much smaller volume basis.
"The ratings of prime auto ABS were relatively stable in 2008 considering the headwinds present. This can be attributed to several factors, including quick amortization and continued building of credit enhancement," officials explained.
Apparently, only four classes of notes from two transactions were downgraded.
Taking a closer look at prime performance, the company said its prime delinquency and ANL (annualized net losses) indices rose, with ANL reaching a record high in November. Meanwhile, the prime 60-plus day delinquency rate came in at 0.85 percent in December, 13.3 percent higher than November and 23 percent above December 2007.
"This is the highest delinquency level produced by the index in almost 10 years," Fitch highlighted.
Additionally, ANL hit a historical high for November coming in at 2.10 percent, then dropping a bit to 1.97 percent in December.
"November's ANL rate was the first time ever the index climbed above the 2 percent level since Fitch began tracking this index in mid 1998," officials noted.
ANL came in at 47 percent higher in December as opposed to the earlier year, after coming in as high as 101 percent on an annual basis in August 2008, Fitch said.
"Seasonally adjusted cumulative net losses were 1.03 percent in December, the eighth consecutive month-over-month increase," analysts said.
Moreover, Fitch explained that the 2007 vintage is producing the "highest level of losses of any vintage going back 10 years."
In fact, loss levels found in this vintage are above those from 1994-1996 and 2001 vintages.
The company went on to note that, "as the transactions from earlier years amortize, keeping in mind that there were relatively few deals issued in 2008, the 2007 vintage will start to drive loss trends more as this vintage makes up a greater concentration of Fitch's delinquency and loss indices."
Like the prime auto ABS, the subprime indices also saw high delinquency and loss rates during the last few months of 2008.
In fact, the 60-day plus subprime delinquency index came in at 4.77 percent in December, which officials said is one of the highest levels experienced in a decade.
"The subprime ANL index followed the same pattern as the prime index, hitting an all-time high of 10.1 percent in November and then moving lower in December to 9.85 percent," executives reported.
"Despite small improvement in December's ANL rates for both prime and subprime indices, auto ABS performance will continue to suffer from the negative effects of the current economic climate, along with issues surrounding the wholesale vehicle market; therefore, loss rates should move higher in early 2009," officials stated.
Overall, Fitch's indices cover performance of about $52 billion in outstanding securitizes issued from 90 prime and subprime auto ABS transactions. The company noted that prime ABS makes up 68 percent, while 32 percent is subprime.
Fitch plans to keep a close eye on auto ABS performance going forward, as many factors will continue to weigh on both prime and subprime indices in 2009.
"Auto ABS will face heightened pressures from several fronts in 2009, including rising loss frequency driven by higher job losses," officials explained. "Loss severity will remain pressured in 2009 due to several reasons, including the unfavorable supply and demand factors present in the wholesale vehicle market, among other factors.
"Fitch expects performance to remain higher pressured and losses to increase further this year," the company concluded.