While experts consider rising interest rates impacting paper currently entering portfolios, S&P Global Ratings highlighted that collateral performance for the U.S. auto loan asset-backed securities (ABS) market improved in August on a year-over-year basis.
In both the prime and subprime sectors, analysts found that annualized losses declined, delinquencies inched downward and recoveries increased from their year levels, but monthly comparisons were mixed.
As losses continued their seasonal second-half climb, delinquencies were stable, prime recoveries were unchanged, and subprime recoveries increased, according to S&P Global Ratings.
The report titled, U.S. Auto Loan ABS Tracker: August 2018, and shared with SubPrime Auto Finance News this week indicated prime cumulative net losses increased month-over-month but improved year-over-year as the August reading came in at 0.53 percent in August. In July, the reading stood at 0.56 percent while a year ago it was 0.76 percent.
Analysts noted subprime net losses increased for the third month in a row, rising to 8.66 percent in August from 7.81 percent in July. Similar to prime net losses, S&P Global Ratings found that subprime net losses also declined year-over-year as last August’s level was 8.97 percent.
“The August net loss numbers reflect normal seasonal trends wherein losses generally have an upward trajectory during the second half of the year,” analysts said in the report.
As a supplement to its subprime index, S&P Global Ratings created the modified subprime index, which excludes certain high-loss deep subprime issuers, including Santander Drive Auto Receivables Trust, American Credit Acceptance Receivables and Exeter Automobile Receivables Trust.
Analysts indicated the modified subprime loss rate increased to 6.92 percent in August from 6.18 percent in July, but the reading dipped from the year-ago mark of 7.09 percent.
Looking at delinquency, S&P Global Ratings said the prime sector 60-plus-day delinquency rate remained stable month-over-month at 0.43 percent in August; the same reading as July. A year earlier, the metric came in at 0.51 percent.
Analysts pointed out that the subprime sector 60-plus-day delinquency rate also remained stable as both the July and August readings came in at 5.00 percent. It also represented a slight improvement year-over-year since last August’s figure was 5.10 percent.
S&P Global Ratings added delinquencies within the modified subprime sector improved in August, dipping to 3.47 percent from 3.57 percent in July and 3.77 percent in August of last year.
Rounding out the latest update, S&P Global Ratings mentioned the prime recovery rate sustained a minor dip to 57.79 percent in August from 57.87 percent in July. But the metric improved year-over-year since last August’s rate was 55.26 percent.
Analysts went on to note subprime recoveries improved to 41.06 percent in August from 40.33 percent in July and 39.15 percent in August 2017. They pointed out that the subprime modified composite weakened a bit with lower recoveries of 40.83 percent in August, compared to 41.23 percent in July. But that rate ticked up from 39.30 percent registered last August.
S&P Global Ratings closed by sharing some additional analysis that might be useful as finance companies track their own vintages. The firm said it compared losses for many of the issuers to their respective indexes over the past several years, finding that the majority of the issuers have experienced higher cumulative net losses on their 2015 securitizations than their 2014 counterparts.
“More specifically, while cumulative net losses on prime 2015 securitizations are trending significantly higher than 2014, the rate of deterioration has slowed for the 2016 vintage and the 2017 vintage with nine months of performance, is demonstrating better performance relative to 2016,” analysts said.
“The 2015 subprime vintage is reporting higher cumulative net losses than for 2014, but the 2016 vintage is performing slightly better than 2015. The 2017 subprime vintage has only nine months of performance and appears to be in line with 2016,” they continued.
In September, S&P Global Ratings said it revised expected cumulative net losses on one Flagship transaction, three AmeriCredit Automobile Receivables Trust transactions, two GM Financial Consumer Automobile Receivables Trust transactions and five First Investor Auto Owners Trust transactions.
“Of the 11 transactions we reviewed, six had downward loss revisions, and five were from 2017 because these have now seasoned sufficiently for us to use actual deal performance to project losses going forward, which usually occurs after 12 to 18 months,” analysts said.