S&P Global Ratings spots diverging patterns within contract extensions
S&P Global Ratings spotted yet another difference between the prime and subprime auto finance segments.
In September, analysts discovered new extension rates between U.S. prime and subprime auto loan asset-backed securities (ABS) diverged.
For public shelves with 17 issuers, S&P Global Ratings reported the prime segment posted its fifth consecutive month of declines in extensions, as the weighted average monthly rate dropped 12.7% to 0.55% from 0.63%.
In contrast, analysts indicated subprime extensions across the four public shelves — SDART, DRIVE, AmeriCredit and World Omni Select 2019-A — increased 13.4% to 3.65% from 3.22%.
S&P Global Ratings then looked to explain why these trends surfaced.
“We believe that the uptick in the subprime extension rate was primarily due to enhanced unemployment benefits dropping to $300 a month from $600. Some unemployed consumers continued to receive the $600 benefit into early August, but September was the first full month of the lower benefit amount,” analysts said in a news release.
“At the same time, many workers in people-facing businesses such as hospitality and retail remain unemployed or underemployed,” analysts continued.
“Furthermore, Hurricane Laura, which caused significant damage to Louisiana at the end of August, also contributed to higher loan extensions,” analysts went on to say. “Louisiana had the highest extension rates in the U.S. for September for both prime and subprime pools.”