Securitization

Nominations now welcomed for The CEO Issue 2018

CARY, N.C. - 

It’s time again when SubPrime Auto Finance News engages with the industry for one of our most successful annual projects — "The CEO Issue."

In an ongoing effort to recognize the chief executive officers who are flourishing in today’s competitive marketplace, SubPrime Auto Finance News is asking the industry to nominate the CEOs of auto finance companies and their critical support service providers to be included in the March/April print edition that’s dubbed, “The CEO Issue.”

Between now and 5 p.m. ET on Feb. 20, nominations along with a high-resolution photograph and explanations as to why the CEO is successful can be sent to SubPrime Auto Finance News senior editor Nick Zulovich via email at nzulovich@cherokeemediagroup.com.

Here are some example questions to be answered to enhance nominations:

—What moves has the CEO made to place the company into position to be successful?

—How does the CEO cultivate a productive environment that inspires the organization at all levels?

—Why is this CEO an example of successful leader who lifts the value of not just the company, but also the entire industry?

To review the rundown of CEOs honored in last year’s issue, the digital version can be found here

SubPrime Auto Finance News publisher Bill Zadeits explained why this endeavor has become one of the highlights of the editorial calendar.

“As our industry continues to evolve, CEOs face many challenges to protect the prosperity of their organizations, not only in the present, but also several quarters and years down the road,” Zadeits said. “The auto finance industry is extremely fortunate to have some of the best leaders who handle those challenges quite well.

“Each year, our network of industry partners has raised its collective hand so we can showcase these impressive executives,” Zadeits continued. “We’re excited to learn more about each of these talented CEOs who will guarantee this $1 trillion economic pillar continues to flourish.”

Along with it being, “The CEO Issue,” the March/April edition of SubPrime Auto Finance News also will focus on both Vehicle Finance Conference hosted by the American Financial Services Association as well as the National Convention & Expo orchestrated by the National Automobile Dealers Association — signature industry events that run from March 20-25 in Las Vegas.

So if you have a longstanding relationship with or report to a CEO who should be included in “The CEO Issue,” send your nominations, images and responses to the sample questions listed above to SubPrime Auto Finance News editor Nick Zulovich at nzulovich@cherokeemediagroup.com. Nominations will be accepted through Feb. 20.

And be sure to get your copy of “The CEO Issue” delivered to your mailbox or grab one at the AFSA or NADA events. If you don’t already have one, get your free subscription by going to www.autoremarketing.com/subprime/subscribe.

Expecting growth, Westlake tops $1B with latest securitization

LOS ANGELES - 

After approaching the $1 billion securitization threshold last summer, Westlake Financial Services surpassed the mark, according to an announcement shared earlier this week.

Westlake issued its largest asset-backed securitization (ABS) of $1 billion backed by approximately $1.1 billion of automotive paper.

Vice president of finance Sean Morgan highlighted this move is Westlake’s largest securitization ever issued with an expected annualized coupon of 3.28 percent.

“Westlake’s past securitizations continue to perform, and the company is growing profitably, promoting investor loyalty and sparking interest from new investors,” Morgan said.

“With a weighted average credit spread 1.12 percent, we were on average over 30 basis points tighter than our last deal for comparable tranches,” he added.

The transaction was led by JP Morgan (structurer), Wells Fargo and Bank of Montreal.

Westlake’s previous securitization was $800 million back in August.

Executives also mentioned this is the company’s first transaction to offer a single-B rated Class F tranche, which added an additional $57 million and brought Westlake’s advance rate to 97 percent.

Westlake chief financial officer Paul Kerwin explained why the company made that move.

“Our focus in 2018 is to continue to gain market share across the credit spectrum,” Kerwin said. “The liquidity cushion provided by our ABS investors has enabled us to expand our financing options to near prime and prime credit customers in recent years.

“Based on our growth trends we expect to be back in the market in Q2 of 2018,” Kerwin went on to say.

Westlake Financial Services continues to experience growth through its nationwide dealer network. The company is active in all 50 states, including Puerto Rico, with a dealer base of more than 20,000 franchise and independent dealerships.

Westlake’s current portfolio of $6.2 billion includes originated auto installment contracts and leases, portfolio purchases and dealer floor plan lines of credit.

CPS finalizes first securitization of 2018, totaling $190M

LAS VEGAS - 

Last week, Consumer Portfolio Services announced the closing of its first term securitization of 2018. 

Officials highlighted the transaction is CPS’ 27th senior subordinate securitization since the beginning of 2011 and the 10th consecutive securitization to receive a triple “A” rating on the senior class of notes from at least two rating agencies. 

In the transaction, qualified institutional buyers purchased $190.0 million of asset-backed notes secured by $193.6 million in automobile receivables originated by CPS. 

The sold notes, issued by CPS Auto Receivables Trust 2018-A, consist of five classes. 

Ratings of the notes were provided by Standard & Poor’s and DBRS, and were based on the structure of the transaction, the historical performance of similar receivables and CPS’s experience as a servicer.

CPS Auto Receivables Trust 2018-A
Note Class Amount Interest Rate Average Life Price S&P Rating DBRS Rating
 A  $88.5 million  2.16%  .76 years  99.99832%  AAA  AAA
 B  $31.5 million  2.77%  1.95 years  99.99632%  AA  AA
 C  $26.9 million  3.05%  2.66 years  99.97596%  A  A
 D  $23.1 million  3.66%  3.49 years  99.98720%  BBB  BBB
 E  $20.0 million  5.17%  4.14 years  99.99278%  BB-  BB

 

Officials indicated the weighted average coupon on the notes is approximately 3.46 percent.

The company explained the 2018-A transaction has initial credit enhancement consisting of a cash deposit equal to 1.00 percent of the original receivable pool balance and over-collateralization of 1.85 percent.

CPS added the final enhancement level requires accelerated payment of principal on the notes to reach over-collateralization of the lesser of 6.80 percent of the original receivable pool balance, or 18.50 percent of the then outstanding pool balance.

Officials went on to mention the transaction utilizes a pre-funding structure, in which CPS sold approximately $121.3 million of receivables last week and plans to sell approximately $72.3 million of additional receivables during the month. 

“This further sale is intended to provide CPS with long-term financing for receivables purchased primarily in the month of January,” the company said.

Additional subprime paper impacts November ABS readings

NEW YORK - 

S&P Global Ratings described what more subprime paper flowing into the auto loan asset-backed securities (ABS) market did to its readings for November.

According to a report published this week, the overall ABS market enjoyed some “mild” improvements in November. Analysts determined that prime collateral performance showed little weakness in losses, delinquencies and recoveries. In addition, the first-quarter 2017 prime vintage is performing better than the 2016 annual vintage.

Although subprime experienced a rise in delinquencies from October, S&P Global Ratings explained this figure was partially attributed to concentration among a few issuers.

Analysts reported that prime net losses declined slightly month-over-month and year-over-year to 0.66 percent in November 2017 from 0.72 percent in October 2017 and 0.70 percent in November 2016.

On the subprime front, S&P Global Ratings noticed the net loss rate decreased to 7.76 percent in November from 7.98 percent in October and 8.44 percent in November 2016. The firm indicated the lower figure is due to several issuers reporting improved performance.

Analysts also mentioned the high volume of new subprime auto loan ABS deals entering their composite since November 2016 has also contributed to the year-over-year reduction. As of November, 32 new deals with a total collateral amount of approximately $19.27 billion were added to the index. This pushed the outstanding collateral amount for November up to approximately $36.42 billion compared with $33.59 billion a year earlier.

“The rise in new issue deals diluted the year-over-year weighted net loss rate because the transactions have lower losses and contribute higher value to weights during their initial stage,” according to S&P Global Ratings.

Analysts went on to mention that from January 2001 through December 2017, upgrades of U.S. auto loan ABS have outweighed downgrades by nearly 52-1.

In 2017, S&P Global Ratings upgraded 322 U.S. auto ABS tranches, affirmed 374, and downgraded none. Of the 322 upgrades, 100 tranches were from prime transactions, and 222 were from subprime.

Latest securitizations by Credit Acceptance and CPS approach $550 million

LAS VEGAS and SOUTHFIELD, Mich. - 

Credit Acceptance and Consumer Portfolio Services each pushed out securitizations recently, and the combined total offered by the auto finance companies that specialize in subprime paper reached nearly $550 million.

The larger of the two developments was from Credit Acceptance, which on Thursday announced the completion of a $350.0 million asset-backed non-recourse secured financing.  Pursuant to this transaction, the company contributed vehicle installment contracts having a net book value of approximately $437.6 million to a wholly-owned special purpose entity, which will transfer the paper to a trust. The result was the issuance of three classes of notes:

Note Class Amount Average Life Price Interest Rate
 A  $233,600,000   2.58 years  99.99188%  2.65%
 B  $62,800,000  3.41 years  99.97321%  3.21%
 C  $53,600,000  3.71 years  99.98411%  3.48%

Credit Acceptance indicated the securitization will accomplish three objectives, including:

—Have an expected annualized cost of approximately 3.2 percent including the initial purchaser’s fees and other costs

—Revolve for 24 months, after which it will amortize based upon the cash flows on the contributed loans

—Be used by the company to repay outstanding indebtedness

“We will receive 6.0 percent of the cash flows related to the underlying consumer loans to cover servicing expenses,” company officials said. “The remaining 94.0 percent, less amounts due to dealers for payments of dealer holdback, will be used to pay principal and interest on the notes as well as the ongoing costs of the financing.

“The financing is structured so as not to affect our contractual relationships with our dealers and to preserve the dealers’ rights to future payments of dealer holdback,” they added.

Meanwhile over at CPS, the company announced the closing of its fourth term securitization in 2017 earlier this month.  The transaction is CPS’ 26th senior subordinate securitization since the beginning of 2011 and the ninth consecutive securitization to receive a triple “A” rating on the senior class of notes from at least two rating agencies. 

In the transaction, CPS highlighted that qualified institutional buyers purchased $196.3 million of asset-backed notes secured by $200.0 million in automobile receivables originated by CPS.  The sold notes, issued by CPS Auto Receivables Trust 2017-D, consist of five classes. 

Officials indicated ratings of the notes were provided by Standard & Poor’s and Kroll Bond Rating Agency, and were based on the structure of the transaction, the historical performance of similar receivables and CPS’s experience as a servicer.

Note Class Amount Interest Rate Average Life Price S&P Rating KBRA Rating
 A  $91.4 million  1.87%  .75 years  99.99875%  AAA  AAA
 B  $32.5 million  2.43%  1.95 years  99.99125%  AA  AA
 C  $27.9 million  3.01%  2.65 years  99.97725%  A  A
 D  $23.8 million  3.73%  3.48 years  99.98753%  BBB  BBB
 E  $20.7 million  5.30%  4.13 years  99.97785%  BB-  BB-

CPS mentioned the weighted average coupon on the notes is approximately 3.39 percent.

The company also noted the 2017-D transaction has initial credit enhancement consisting of a cash deposit equal to 1.00 percent of the original receivable pool balance and over-collateralization of 1.85 percent.  The final enhancement level requires accelerated payment of principal on the notes to reach overcollateralization of the lessor of 6.80 percent of the original receivable pool balance, or 18.50 percent of the then outstanding pool balance.

CPS went on to say the transaction utilizes a pre-funding structure, in which CPS sold approximately $133.4 million of receivables today and plans to sell approximately $66.6 million of additional receivables during October. 

“This further sale is intended to provide CPS with long-term financing for receivables purchased primarily in the month of October,” officials said.

Editor’s note: Watch for upcoming reports as the executive teams from both Credit Acceptance and CPS discuss company results from the third quarter.

Davis & Gilbert experts finds 4 signs of subprime auto ABS market vulnerability

NEW YORK - 

As S&P Global Ratings noticed collateral performance in the U.S. subprime auto loan asset-backed securities (ABS) market deteriorated moderately on a sequential basis in August, Davis & Gilbert’s Insolvency, Creditors’ Rights & Financial Products Practice Group fears investors could be in for a surprise if that market segment makes a more notable move.

First, S&P Global Ratings indicated the subprime net loss rate increased to 7.95 percent in August 2017 from 7.38 percent in July but decreased year-over-year from 8.35 percent. This development is largely because a high volume of new subprime auto loan ABS deals have entered its composite reading since last year, which increased the outstanding balance of the collateral.

Between August of last year and the same month this year, analysts noted about 35 new deals with a total collateral amount of approximately $17 billion were added to their index. These additions pushed the outstanding collateral amount up to approximately $35.6 billion compared to $32.0 billion a year earlier.

“The rise in new-issue deals diluted the weighted net loss rate year over year because the transactions have lower losses and contribute higher value to weights during their initial stage,” S&P Global Ratings explained in a report shared with SubPrime Auto Finance News.

“As these transactions age, losses will increase — a trend we also often encounter in companies' managed portfolio loss statistics. As a result, we believe static pool vintage analysis provides more meaningful insight into actual performance trends,” analysts continued.

Meanwhile, the growth of the subprime auto ABS market is what’s concerning Davis & Gilbert partner Joseph Cioffi, an authority on loan and securitization markets. Cioffi has found that credit enhancements supporting subprime auto asset-backed securities (ABS) do not necessarily provide the same level of protection as credit enhancements supporting pre-financial crisis era subprime residential asset-backed securities (RMBS), “leaving them more vulnerable to market shifts and shocks than many realize.”

 These observations were made on a newly launched blog, the Credit Chronometer, in which Cioffi and team will be analyzing economic, market and political events that shape the legal landscape, and impact loan and structured credit markets, including those for auto loans, marketplace lending (peer-to- peer), student loans, mortgage loans and Property Assessed Clean Energy (PACE) financing.

In a blog post, Cioffi noted that the subprime mortgage collapse left clues for the future of subprime auto ABS.

“Credit enhancements in those deals could not always fully absorb losses from the real estate crash, and its impact on loan performance and recoveries,” Cioffi said. “Subprime auto ABS makes no such mistake regarding vehicles, but the corollary to the assumption of never ending real estate appreciation may be the presumed continued performance by auto loan borrowers.”

Cioffi has a warning for those who structure deals with too heavy a reliance on excess spread. “There are a number of hazard signs on this front, including easier credit as a result of softness in the auto sales market, growing household debt and now, a new potential disruptor, climate change.”

While the auto finance industry spent consider effort refuting thoughts about a “subprime bubble” and correlations to the mortgage meltdown, Cioffi elaborated about his analysis in a message to SubPrime Auto Finance News.

“The term ‘bubble’ has expanded to become a loaded term that pushes folks to the extreme edges of the debate, leaving no room for anyone to see the other side,” Cioffi said. “A bubble means that the value isn’t there to support the pricing, and for subprime auto, the question often gets answered at too high a level. It has resulted in a lot of endless loop type of questioning that hasn’t advanced the industry — experts cherry-pick similarities or differences to subprime mortgages to support a position either way. 

“At Credit Chronometer, we’ve taken a more disciplined approach by identifying 10 factors that contributed to the subprime mortgage crisis — key indicators of crisis that exist within lending practices, securitization practices and the underlying auto market — and we’re continuing to gauge their presence in subprime auto,” he continued. “When you look at the indicators of crisis objectively you could better determine pricing – in many situations the securities could better reflect the risks.”

As Cioffi explained, the Credit Chronometer presents the “Subprime Auto Loan Crisis Chronometer” to depict the risk of a crisis, which Cioffi defines as a “battle over loss allocation.” As events impact the subprime auto market, the Subprime Auto Loan Crisis Chronometer’s bright yellow gauges will show the current level of risk. As of today, the Subprime Auto Loan Crisis Chronometer is set at:

• Lending practices: Moderate-High 


• ABS practices: Moderate 


• Auto market: High 


• Risk of loss allocation battles: Moderate 


To avoid a subprime auto crisis, Cioffi urges, “Investors should recognize that relative to subprime RMBS, overcollateralization rates are not exceedingly high, given the equity cushion that was assumed to have existed in homes backing RMBS. Although investors have demanded credit enhancements that correlate to pool risk, a combination of loose lending and rising negative equity creates the prospect that risk allocation battles are on the horizon.”

SubPrime Auto Finance News closed its opportunity with Cioffi by asking how investors balance the search for yield against the risk in auto ABS?

“As we note in our analysis found on the Credit Chronometer site, lending practices are divided at this point, with some chasing riskier borrowers and others following a more conservative approach,” Cioffi said. “The main thing is for investors to be aware of where the collateral comes from.  Risk is not necessarily a bad thing, so long as it is disclosed so that it could be appropriately priced.”

Temporary impact from hurricane damage expected on auto ABS

NEW YORK - 

S&P Global Ratings certainly didn’t dismiss the Cox Automotive estimates that Hurricane Harvey may have destroyed 300,000 to 500,000 vehicles, while Hurricane Irma ruined up to 400,000 units.

But analysts suspect any severe impacts on the collateral for auto loan asset-backed securities transactions (ABS) the firm rates will be temporary.

“Although it is still too early to assess the full impact these hurricanes will have on auto loan ABS performance, S&P Global Ratings expects higher delinquency rates and defaults on a temporary basis, mainly for transactions with greater exposure to the affected areas and lower-credit-quality obligors (especially smaller subprime issuers regionally concentrated in the South),” analysts said in a report distributed this week.

While Texas and Florida are usually important state concentrations in auto loan ABS transactions, S&P Global Ratings pointed out that most pools are well-diversified geographically. Of all S&P Global Ratings-rated prime and subprime transactions, the weighted average auto loan ABS exposure to Texas and Florida combined (at closing) was 23 percent.

“But since Texas and Florida are large states only a limited portion of the exposure is likely within the affected areas,” analysts said.

In addition, S&P Global Ratings added that higher ratings on seasoned prime and subprime transactions that have moderate exposures to the affected states are unlikely to experience negative rating actions given their strong structures.

“For subprime transactions our stressed loss assumptions often contemplate default frequencies above 70 percent, which would address exogenous shocks such as hurricane-related losses,” analysts said.

“These factors, plus insurance coverage and adjustments servicers have made in the wake of the storms, should help mitigate higher losses,” they added.

In a separate report sent to SubPrime Auto Finance News, S&P Global Ratings also touched on the types of insurance collateral contained in these pools typically have.

In the prime space, the report mentioned that insurance is in place on contracts at origination, which typically covers flood damage.

Within subprime, however, S&P Global Ratings acknowledged that insurance is typically in place at origination but might not be in place for long.

“Subprime borrowers often cancel or allow their insurance to lapse over the course of their loan, and, as a result, it is our view that a higher percentage of subprime loans are uninsured than prime loans,” analysts said.

Pushing through ‘alarm bells’ within the subprime auto ABS market

NEW YORK - 

The analyst team at S&P Global Ratings asked a question that perhaps many other finance company leaders and auto finance observers have pondered. In fact, the question turned into the title of the firm’s latest report, “After Two Decades On The Road, What’s Driving Rating Stability In Subprime Auto Loan ABS?”

S&P Global Ratings acknowledged there are several factors “sounding alarm bells” within the subprime ABS market. The report began by explaining that S&P Global Ratings’ vintage data for subprime auto loan asset-backed securities (ABS) issued in 2015 and 2016 have shown that delinquencies are rising, meaning borrowers are missing payments even though the unemployment rate is at its lowest level since 2001.

At the same time, the report noted that recoveries have worsened because vehicle values are declining. In 2015 and 2016, S&P Global Ratings said that issuers also included more deep subprime auto installment contacts — individuals with lower and no FICO scores — in their securitizations than in the past.

Analysts then acknowledged that all of these factors have combined, and as a result, loss rates for S&P Global Ratings' subprime auto loan ABS static index are rising and matching levels reported during the 2007-2009 recession. With just under two years of performance, the 2015 vintage at month 21 has cumulative net losses of 8.8 percent — a 19-percent increase from 7.4 percent for the 2014 vintage and in line with 8.9 percent for the 2007 vintage at the same point.

So why aren’t those alarm bells so loud that finance companies can’t hear anything else? Especially since the Federal Reserve said outstanding auto finance balances reached $1.19 trillion in the second quarter?

Analysts pointed out that of that amount outstanding only $100 billion backs S&P Global Ratings-rated retail auto loan ABS.

And while the Fed estimates that $119 billion in subprime auto loans was written in 2016, analysts estimated that only about 19 percent of that paper was securitized, “indicating that portfolio lenders hold a large portion of the exposure,” according to the report.

That report goes on to mention how vibrant capital markets, origination growth and new-vehicle sales all have helped to revive growth in the subprime auto finance market since 2009, demonstrating that the market follows the economic cycle.

Analysts added that the subprime auto loan ABS market has weathered two downturns over the past two decades, and it has since evolved.

Additionally, S&P Global Ratings insisted that subprime auto loan ABS transactions' high credit enhancement levels and other structural features have supported stable ratings. Since 1991, there have been only two defaults on S&P Global Ratings-rated subprime auto loan ABS (both on “BB” rated subordinated classes), and from 2004 through Aug. 31 of this year, there have been 881 upgrades and no defaults or downgrades.

“And while the subprime auto lending sector currently faces a number of headwinds, including intense competition, lower recovery rates, a shifting macro environment, and increased regulatory scrutiny from federal and state agencies, we believe our rating analyses address these risks,” analysts said.

“In our view, certain subprime auto loan ABS securitizers have started to take corrective measures to stem the rise in losses and address heightened risks,” they went on to say.

Securitization notes: Updates from Prestige & Westlake

LOS ANGELES and SALT LAKE CITY - 

Westlake Financial Services and Prestige Financial Services each announced updates about securitizations this week, combining for a total surpassing $1.1 billion.

The larger of the two securitizations came from Westlake, which actually rolled out its largest issuance in company history.

Westlake issued an $800 million asset-backed securitization (WLAKE 2017-2) backed by approximately $860 million of automotive paper.

The transaction was led by Wells Fargo Securities (structurer), Credit Suisse and SMBC Nikko. It is the latest of Westlake’s 14 securitizations, which have been comprised of approximately $5.86 billion in cumulative note sales.

“This ABS trumps the most recent securitization completed back in March, which was at the time, our largest ABS ever issued of $700 million,” Westlake chief financial officer Paul Kerwin said. “Our credit performance remains strong in spite of competitive and economic pressures, which attracts investors to our portfolio and enables us to continually increase our securitization amount.”

The company indicated Westlake’s largest-ever securitization has an expected annualized cost of 2.65 percent including the initial purchaser’s fees, which is in-line with prior ABS deals, despite higher benchmark interest rates.

“Westlake’s ABS continue to perform and investors keep supporting our portfolio,” Westlake associate vice president of finance Sean Morgan. “We increased our deal by $100 million with 37 investors on WLAKE 2017-2, which is a reflection of continuous investor demand for Westlake’s ABS.”

Westlake pointed out that it maintains six borrowing facilities funded by 10 banks with combined capacity of $1.48 billion to support continued growth in its full-spectrum financing platform.

Westlake also highlighted that it continues to experience increased growth through its nationwide network of dealers. The company is active in all 50 states, including Puerto Rico, with a dealer base of more than 25,000 franchise and independent dealerships.

Westlake’s current portfolio of $4.01 billion includes originated auto loans, portfolio purchases and dealer flooring lines.

Meanwhile over at Prestige Financial Services, the announced it has completed its 16th rated term securitization, issuing $335,223,000 in securities backed by $358,533,598 in automobile installment receivables.

In a transaction led jointly by J.P. Morgan Securities and Wells Fargo Securities, Prestige indicated that notes were purchased by qualified institutional buyers in a private offering pursuant to Rule 144A of the Securities Act. The securitization closed on Wednesday.

Officials highlighted the seven note classes issued by Prestige Auto Receivables Trust 2017-1 carried ratings ranging from A-1+/R-1(h) through BB/BB from Standard & Poor’s and DBRS, respectively, based on several factors including Prestige’s track record as a loan originator and servicer. The duration-weighted average rate was 2.76 percent.

“Prestige has been an active participant in the asset-backed term market for two decades, with nearly $4 billion in total issuance,” J.P. Morgan Securities executive director Billy Wong said. “PART 2017-1 is yet another demonstration of the company’s ability to access liquidity on relatively favorable terms.” 

Prestige was founded in 1994 as an affiliate of the Larry H. Miller Group of Companies, which includes the NBA’s Utah Jazz and one of the country’s largest dealership networks. Today, Prestige manages a portfolio of more than $1 billion in contracts and does business with dealerships across the country.

“Our securitizations have continued to enjoy the support of both new and repeat investors,” Prestige chief financial officer Aaron Dalton said. “Thanks to them, this transaction delivered some of our tightest pricing spreads ever.”

Prestige added that all notes included in this transaction having been sold, and this announcement appears as a matter of record only.

3 reasons why KBRA remains ‘comfortable’ with ABS fundamentals

NEW YORK - 

Despite four factors that might make its confidence deteriorate, Kroll Bond Rating Agency (KBRA) said in a report released on Monday that it remains “comfortable” with auto loan ABS fundamentals.

That assertion came within the firm’s newest structured finance research report titled, "U.S. Auto Market Update: Deconstructing Headline Loss Rates." Before making a trio of additional assertions, KBRA acknowledged delinquency and net loss rates for the securitization of auto paper have been rising.

Analysts pointed out that peak losses in prime and non-prime collateral pools reached 0.94 percent and 9.43 percent earlier this year, respectively, versus 0.79 percent and 8.23 percent a year ago.

KBRA also conceded that there multiple late-cycle indicators continuing to garner headlines — softer used-vehicle pricing, rising inventories, weakening seasonally adjusted annual sales (SAAR) and rising loan losses. Nonetheless, analysts arrived at its “comfortable” position while making these conclusions:

—Much of the deterioration in auto loan ABS fundamentals can be attributed to mix shift. However, as the used-vehicle market has softened, the firm has seen incremental deterioration on an issuer-by-issuer basis.

—Analysts think used-vehicle prices remain vulnerable to a confluence of factors, including excess OEM production and dealer inventory, elevated new-model price incentives and growing off-lease vehicle supply. KBRA’s expectation is for continued softening in the used-vehicle market through 2017 and 2018, which will likely continue to place pressure on auto loan loss rates as severities remain elevated.

—Despite rising losses, KBRA insisted risks remain well contained, and investors are well protected given that these securitizations continue to benefit from robust credit protection.