The Canadian auto securitization market has exhibited healthy vital signs through the recent economic turmoil, in part because of the existence of robust enhancement and bankruptcy-remote structures, according to a DBRS commentary published today.
“A significant bright spot throughout this period has been the performance of structured auto transactions, which have continued to perform within expectations, supported by a healthy diet of strong enhancement levels and bankruptcy-remote legal structures,” said Tim O’Neil, vice president at DBRS.
O’Neil added that it if the worst was over, then the auto structures have successfully weathered the storm. Alternatively, if there is more and worse volatility in delinquencies and losses to come, there is still room in the structures to maintain current ratings.
The commentary presents an overview of key economic metrics (unemployment, bankruptcies and auto sales) and analytic metrics (delinquency rates, cumulative loss rates and cumulative residual value losses) that indicate that the levels of credit enhancement and early warning triggers built in to most Canadian auto asset-backed security (ABS) and asset-backed commercial paper (ABCP) transactions have helped provide the securitizations with a relatively clean bill of health through the period of an otherwise ailing economy.