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Fitch Ratings Reports Prime Auto ABS Losses at Historic High

October 01, 2008

NEW YORK — International credit rating agency Fitch Ratings reported that U.S. prime auto loan asset-backed securities (ABS) hit a record high of 1.73 percent in August, just above the previous high set in early 2003.

Auto ABS performance in 2008 continues to be impacted by the poor state of the U.S. economy, including rising unemployment, deteriorating consumer health, and lower wholesale vehicle values. The 2007 vintage is producing the highest levels of losses when compared to vintages going back to 2000, driving Fitch’s high annualized net losses (ANL) index higher in 2008.

In the prime sector, Fitch’s 60 days-or-more delinquency index was unchanged at 0.71 percent in August over July, 20 percent above 2007 levels. ANL rose 22 percent in August over July, driving losses 101 percent higher when compared to August 2007.

The subprime auto ABS 60 days-or-more delinquency index was at 3.85 percent in August, 6 percent higher than July. ANL were at 7.45 percent in August, 14 percent over July, and on a year-over-year basis 31 percent higher than in August 2007. The weakest period of performance for subprime losses was in late 2003 when losses were approximately 9.50 to 10 percent, so current levels remain below this range.

Despite record ANL on U.S. prime auto loan ABS in August, negative rating actions in 2008 have been minimal, according to Fitch Ratings. Structural features and credit enhancement, along with transactions deleveraging, have limited negative ratings actions in 2008. Fitch has upgraded 29 prime auto ABS subordinate tranches in 2008, down from 66 in 2007. During August, Fitch upgraded 11 tranches from four prime transactions including upgrades on transactions of U.S. domestic captives.

Additionally, Fitch continues to issue upgrades on subordinate notes, albeit at a slower rate than in 2007.

"In the historically weak fall months," said Managing Director John Bella, "Fitch expects ANL may approach the 2 percent level as predicted at the beginning of the year."

Fitch’s indexes track the performance of 101 prime and subprime auto ABS transactions outstanding, totaling $61.42 billion, of which 68 percent are prime auto ABS and the remaining 32 percent subprime auto ABS.

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