NEW YORK -

Viewed through the prism of the U.S. auto asset-backed securities (ABS) market, S&P Global Ratings generated a report examining the depth and potential impact of extensions of vehicle installment contracts because of the COVID-19 pandemic.

According to a report based on the firm’s watch of securitizations, S&P Global Ratings computed that extensions on a dollar basis in the prime segment for March equaled 3.94% of outstanding contracts as of the beginning of the month — 12 times February’s level of 0.33%.

In the subprime space, extensions more than quadrupled to 6.82% in from 1.53% in February, according to the report titled, SF Credit Brief: While Stay-At-Home Orders Clear Traffic, U.S. Auto Loan Extensions Rise.

“While the average level of deferrals in subprime pools are higher than their prime counterparts, extensions in prime pools are as high as subprime pools in some cases,” analysts said.

“It’s hard to conclude too much though from one month of performance,” analysts continued. “Further, the banks and captive finance companies may be more highly motivated to offer extensions to their customer base due to the seemingly stronger credit quality of their obligors as well as the lenders’ desire to maintain customer loyalty.

“In addition, given the higher annual percentage rates (APRs) on subprime auto loans, it may be more prudent for those customers to make the payments when due if possible rather than extend the loan and have large amounts owing at the end of the loan term due to accrued interest,” S&P Global Ratings went on to say.

Analysts also discovered Nevada and Florida have the highest extension levels in both the prime and subprime segments.

In prime, S&P Global Ratings found that approximately 8% and 7% of these contracts in Nevada and Florida, respectively, were extended in March. In subprime, approximately 11% and 10% of the contracts in these two states, respectively, were extended.

The firm pointed out that in Nevada, the leisure and hospitality industry (including casinos) directly employs one-in-four workers in the state, and the casinos have been closed since mid-March.

“In our view, extensions will likely remain high for at least the next two-to-three months due to high unemployment levels, and lenders preferring to work with their customers rather than trying to repossess and sell vehicles into a depressed and only partially functioning used vehicle wholesale market,” analysts said.

“Further, many states have imposed restrictions on collection efforts to a greater or lesser extent, and banned repossessions and the garnishment of CARES Act payments while their state is under a state-of-emergency,” they added.

S&P Global Ratings closed its report with this assessment.

“We believe these extensions, by themselves, will not lead to timely interest payment defaults on S&P Global Ratings-rated auto loan ABS transactions due to significant liquidity in those transactions, including reserve accounts, the ability to use principal collections to pay bond interest and conservative assumptions used when setting legal final maturities,” analysts said.

“In the coming months, we will be monitoring extensions and other performance variables on outstanding auto loan ABS transactions and will be taking rating actions as deemed appropriate,” they went on to say.

For more details about specific finance companies, the report can be viewed here.