The structured finance markets in North America are positioned for another stable year in 2019; however, Fitch Ratings' outlook report points to several noteworthy external factors investors should consider.
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Following slight increases in the first half of 2018, Fitch's U.S. Prime Chargeoff Index fell below 3% in third quarter 2018 (3Q'18) to an average of 2.97%. 60+ day delinquencies, and declined in the third-quarter to an average of 1% from 1.06% in 2Q'18, an indication that chargeoffs should remain lower in the short term.
Canadian consumers are adeptly keeping up with rising household debt and still paying their credit card balances on time with chargeoffs and delinquencies remaining stable, according to Fitch Ratings' latest credit card index.
Sears' Chapter 11 bankruptcy filing, announced on Oct. 15, 2018, and the anticipated closing of 142 stores by year end should not have an impact on the ratings of Citibank Omni Master Trust, says Fitch Ratings.
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.
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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.