Late-cycle credit behaviour is manifesting in securitisations more frequently of late, which has triggered more unsolicited commentaries from Fitch Ratings on structured finance deals not rated by the agency and in certain sectors, according to the rating agency in a new report.
Positive performance of U.S. FFELP student loan ABS is offsetting immediate maturity risk brought on by rising income-based repayment (IBR) levels across FFELP portfolios. However, if growth surpasses expectations in a stressed environment, IBR payments could adversely affect ratings, particularly on non-turbo transactions with little credit enhancement.
Fitch Ratings believes the performance of Auto ABS in China is stable despite Fitch's China Auto ABS Index showing a marginally higher annualised gross loss (AGL) and marginally higher monthly delinquency ratios compared with March 2018. The minor deterioration is the result of a smaller outstanding balance of transactions rather than deteriorating sector performance. The issuance of new transactions has been slow in 2018, which has resulted in more securitised auto loans being repaid than have been newly securitised.
Canadian consumers continued to pay off more of their credit card debt at a record rate last quarter even as overall debt remains on the rise, according to Fitch Ratings in its latest index for Canadian Credit Card ABS.
Fitch Ratings has assigned final ratings to Fuyuan 2018-2 Retail Auto Mortgage Loan Securitization Trust's Class A1 fixed-rate notes, Class A2 floating-rate notes and Class B floating-rate notes. The issuance consists of notes backed by Chinese automotive loan receivables originated by Ford Automotive Finance (China) Limited.
Synchrony Financial announced on July 26 that their agreement to issue store cards for Walmart Inc. would not be renewed following the expiration of their contract on July 31, 2019. While Walmart cards currently make up 12.2% of the principal balance of the Fitch-rated Synchrony Credit Card Master Note Trust pool as of March 2018, we do not anticipate the expiring contract to have negative impact on the outstanding ratings of the notes.
This series features senior analysts across our structured finance teams answering the questions we regularly address in one-on-one investor meetings. It covers overall market trends, specific transaction performance, and broad economic issues to give you the insights and perspective you’d get at one of our in-person meetings.
Unemployment is the primary cause of obligor defaults in European unsecured consumer ABS transactions, but secondary factors such as origination channels and purpose can cause significant variations in performance among lenders.
erformance for US credit card ABS improved last month, though recently implemented economic policies have yet to shake up credit card measures. Rising US job growth coupled with low unemployment kept US credit card ABS in check, with Fitch's prime index registering improvements across all credit metrics.
The supply of used light trucks (SUVs/CUVs/Trucks) will continue to swell in 2018 and into 2019, placing downward pressure on residual values (RV) in auto lease asset backed securities (ABS), Fitch Ratings says. Auto lease ABS pools have high exposure to these segments, particularly 2016-2018 vintages, given the vehicles' high popularity and strong sales patterns.
Stronger provisions in transaction documentation ahead of LIBOR's discontinuation are an important step to limit the number of legacy structured finance (SF) contracts, Fitch Ratings says. However, much still needs to be done before the end of 2021 when forced LIBOR panel participation will end.
Investors should be cautious before assuming the stronger collateral pools of recent marketplace loan ABS will perform better than prior transactions. Attempting to offset weakening performance on recent originations, particularly from the lowest quality borrowers, lenders have pulled back noticeably on lending to lower FICO score and internal credit tier borrowers. The adequacy of such measures is unclear at this point.
Falling used vehicle values and swelling supply are set to continue at least through next year, which will lead to worsening recoveries and heightened performance pressures for both auto loan and lease ABS.
European auto ABS performance in 1Q18 showed signs of deteriorating performance as delinquencies and losses are slowly, but steadily, building up, Fitch Ratings says in the "2Q18 Auto ABS Index - Europe" report. The three-month average (3MA) Fitch 30+ Delinquency Index and the Fitch 60+ Delinquency Index increased to 0.89% and 0.45%, respectively, from 0.8% and 0.41% in 4Q17.
Chargeoffs averaged 3.14% during first-quarter 2018 (1Q18) compared with 2.84% for all of 2017. Normalization is likely to continue, though chargeoffs will stay well below recessionary highs for the foreseeable future. Delinquencies also rose to 1.15% in 1Q18 from 1.09% in 4Q17. "Increasing debt is usually a sign of growing confidence in the economy, though consumer debt has now reached pre-recession levels and thus cannot be ignored," said Senior Director Herman Poon.
Depreciation on two to six-year old vehicles in the U.S. is forecast at 17% for 2018, up from 13% in 2017, according to Black Book. This is due to rising used supply entering the wholesale markets, driven in part by a 12% jump yoy in lease returns coming due. Fitch Ratings believes this will drive recovery rates in auto asset backed securities (ABS) lower and prime cumulative net losses (CNL) will creep up to 1.0% in 2018.
This week's German court ruling that cities can impose restrictions on diesel vehicles sets the stage for diesel car bans, which will keep pressure on demand and prices. We believe Fitch-rated German auto ABS deals would prove resilient in the face of sharp car price declines, but we will continue to monitor the market to assess whether we need to adjust our asset performance assumptions.
Steadily rising Canadian household debt is not dissuading credit card users from paying off their balances in full and on time. Both chargeoffs and delinquencies remained stable for Canadian credit card ABS last quarter. Chargeoffs averaged 3% in fourth-quarter 2017 while 60+ day delinquencies hovered at around 1% for the quarter (compared to 2% a decade ago).
After passing 3% for the first time in three years, US credit card ABS chargeoffs fell back under that threshold to close out 2017. Chargeoffs declined to 2.93% last quarter, higher than the 2.33% seen in fourth-quarter 2016.
We have a Stable Outlook on the ratings of all outstanding New Zealand ABS transactions, supported by strong economic fundamentals, individual structural features and transaction performance. More Global 2018 Credit Outlooks
The outlook on Korean credit card and auto loan ABS transactions rated by Fitch Ratings is stable. The stable outlooks on the ratings of seven credit card and two auto loan transactions are supported by asset performance, robust transaction structures and the agency's expectations for the economy. More Global 2018 Credit Outlooks
We believe that Indian auto ABS transactions will continue to outperform the vintage portfolios of their respective originators. The transactions we rate typically have peak 90+days past due (dpd) rates that are 30% to 60% lower than those of vintage pools for the respective originators.
The ABCP Scorecard features snapshots for each of the ABCP programmes rated by Fitch globally. Through a combination of key programme facts and attributes — including conduit biographical data, structural support features and protection mechanisms, and programme outstandings — our profile reports provide investors with consistent background information for evaluating ABCP programs
The three-month average rolling charge-off index remained stable at 3.6% during 3Q17. We maintain a stable outlook on the sector despite some expected asset deterioration over the next 12-18 months, due to substantial buffers between trust steady state levels and current performance metrics.
The growth of Personal Contract Purchase (PCP) contracts has increased car market value risk in the UK auto ABS markets. This was already an established feature of UK transactions, due to consumers' long-standing voluntary termination rights.
Smaller aircraft lessors have increasingly sponsored global aircraft ABS during the last 18 months, while larger, established lessors have sought financing elsewhere. More participation from new, less established lessors is leading to changes in the composition of the securitized aircraft collateral pools, which could raise risks.
Increased issuance of asset-backed securities by US banks and nonbank financial institutions could affect some issuers' credit profiles if it leads to a sustained increase in secured wholesale funding sources.