While improved recoveries in May helped to boost the overall metrics within the U.S. auto loan asset-backed securities (ABS) sector, S&P Global Ratings noticed significant turbulence is developing within the subprime space.

On a static pool vintage basis, S&P Global Ratings discovered subprime cumulative net losses for the 2015 and 2016 cohorts are nearing the recessionary peak levels of 2007 and 2008. And analysts also noticed the 2017 vintage — with only six months of performance — has exceeded those levels.

And S&P Global Ratings also has made its first negative ratings actions within the auto ABS space in seven years.

“In our view, the primary reason for this is the compositional shift of the index,” analysts said.

According to the latest report S&P Global Ratings, the firm explained that its subprime index became more heavily weighted toward deep subprime issuers between 2007 and 2017. Analysts acknowledged these issuers’ pools tend to have three characteristics, including:

— An expected cumulative net loss of 20 percent or more

— Weighted average FICO of the pools tends to be 550 or lower

— Many of the obligors don’t have a credit bureau score.

While the subprime sphere has some sour numbers, S&P Global Ratings pointed out other portions of the ABS market are performing much better, especially since improved recoveries in May contributed to lower losses relative to April and last May.

Analysts indicated prime losses declined to 0.47 percent in May from 0.53 percent in April and 0.60 percent a year earlier, as recoveries increased to 70.44 percent from 65.25 percent in April and 64.31 percent in May of 2017.

S&P Global Ratings reported that prime delinquencies in May held stable month to month at 0.39 percent and were down from 0.45 percent a year earlier.

Meanwhile, analysts determined subprime losses declined to 6.00 percent in May from 6.43 percent in April and 6.98 percent in May of last year also due to higher recoveries, which rose to 48.49 percent from 47.36 percent in April and 42.84 percent last May.

However, S&P Global Ratings mentioned that after a seasonal decline during a three-month stretch, subprime delinquencies in May rose to 4.29 percent from 4.01 percent in April 2018, though they remained below last May’s level of 4.50 percent.

During the first half of this year, S&P Global Ratings said it upgraded 178 classes of U.S. auto loan ABS, downgraded none and affirmed 137.

“We also placed five classes on CreditWatch negative. These are our first negative rating actions for auto loan ABS since 2011,” analysts said.