NEW YORK — Fitch Ratings recently completed a review of the rated portfolio for public and privately placed auto lease-backed securitizations, and while indicating that its outlook is negative due to the mounting losses on lease residuals, overall, it remains generally stable.

"Fitch's review determined that despite significantly higher expected losses on lease residuals, transaction structures for most rated notes were able to sustain stresses sufficient to be affirmed at current ratings," officials explained.

Basically, while residual loss expectations have "risen significantly compared to initial expectations, Fitch concluded that most transactions were able to sustain the more stringent residual assumptions," according to the company.

Moreover, Fitch found that securitizations with sufficient excess spread and moderate concentrations in near-term residual maturities were able to build credit enhancement under updated base-case scenarios.

"This is imperative as residual exposure will continue to grow as a percentage of most pools," executives pointed out. "Certain transactions also benefited from having significantly lower than forecast credit losses, as enhancement initially expected to cover those losses could be allocated to residual losses."

Citing an earlier company report, which details declines in wholesale values for some vehicles, such as trucks and SUVs, the company said, "residual losses on these transactions displayed particular weakness in the late second and early third quarter of 2008, largely due to record gasoline prices and the effect on demand for less fuel-efficient vehicles.

"During this time, a dichotomy in the residual performance of the car and truck/SUV segments developed, with smaller fuel-efficient vehicles generally experiencing residual gains, while luxury models, trucks and SUVs experienced double-digit losses," Fitch highlighted.

As many would suspect, generally high concentrations in trucks and SUVs led to residual losses on turned-in vehicles ranging from 10 to 20 percent.

"While recent months' data suggest that there has been some stabilization/improvement in auction performance of the truck and SUV segments, Fitch's outlook for residual performance and the wholesale-vehicle market remains negative due to expected continued fuel-price volatility, weak consumer demand for vehicles, increasing heavy utilization of manufacturer incentives/rebates on new-vehicle purchases and the upcoming slow winter season," officials explained.

So ultimately, Fitch appears to remain concerned about the impact fluctuating wholesale values will have on residual values, hence its negative outlook.

"Further deterioration in general demand for automobiles, continued fuel-price volatility and the development of replacement technology all present risks to the performance of these transactions," the company stated.

Even though the company expects declining asset performance, it indicated that auto-lease securitizations have short weighted average lives due to the popularity of 24- and 36-month leases.

"In addition, credit enhancement is non-declining for these transactions, further adding to a rapid delevering effect on the notes," the company reported.