Much like the rest of the European primary ABS market, new issuance for auto ABS in 2008 slowed significantly compared with the volumes issued during 2007.
According to ABS analysts, approximately E5.6 billion ($7.6 billion) was launched compared with the E11.8 billion recorded in 2007, and only two new auto ABS transactions launched in 3Q08 totaling E2 billion, a 25% reduction compared with Q307.
Overall, European auto ABS paper showed further weakening during the third quarter of 2008.
Fitch Ratings reported in its latest quarterly newsletter that its 60- to 180-day delinquency index increased by 0.2% to 1.2% during Q308. Fitch's excess spread index reported a significant increase of 0.3% to 2.3% during the same period, although this was mainly a result of comparably high excess spread figures reported by a new Italian transaction that was added to the index.
According to Standard & Poor's, Spanish delinquencies increased significantly, which could begin to negatively impact ratings on some of the junior notes the agency rates.
"The steep increase in delinquencies in Spanish auto ABS reflects the deteriorating internal macroeconomic situation, which could lead to negative rating actions in this sector, as observed in Spanish ABS consumer and SME deals," S&P analysts said.
In Q208, Fondo de Titulizacion de Activos Santander Consumer Spain Auto 2006 and Fondo de Titulizacion de Activos Santander Consumer Spain 07-2 stopped revolving earlier than expected because of the breach of their respective delinquency triggers. Meanwhile, in 3Q08, Fondo de Titulizacion de Activos Santander Consumer Spain Auto 07-1 stopped its revolving period early because of a breach of the same trigger.
As a result, S&P downgraded the class B and C notes issued by Fondo de Titulizacion de Activos Santander Consumer Spain Auto 07-1, and the class B, C, and D notes in Fondo de Titulizacion de Activos Santander Consumer Spain Auto 2006 and Fondo de Titulizacion de Activos Santander Consumer Spain 07-2. The rating agency affirmed its 'AAA' ratings on the class A notes issued under these three deals.
A fourth Spanish auto loan transaction, BBVA Finanzia Autos 1, stopped revolving in 2Q08 because the level of loans over 90 days in arrears exceeded the trigger level of 2.2% of the assets' outstanding balance. In 3Q08, delinquencies for this deal continued to increase, and at the end of the quarter stood at 3.05%.
"In Spain, since the start of the year, we have noted a steeper increase in arrears than previously observed," credit analyst Filippo Boninsegna said. "Given the current Spanish macroeconomic environment, we believe this growth will continue ever more rapidly, potentially putting the ratings on some junior notes under pressure."
Both Fitch and S&P said that the current level of delinquencies reflect a general deterioration in the economic scenario. Fitch reported that new car registrations in Spain, Italy and the U.K. saw a sharp decline compared with 3Q07. France and Germany have suffered much less, with France still showing a slight increase in registrations (over 0.9%).
"The heavy reduction in new car registrations, especially in Spain, Italy and the U.K., is seen as an early indication of the tighter economic conditions facing consumers," Fitch analysts said. "However, the extent of this deterioration is not yet fully reflected in the performance of auto ABS transactions."
Any further deterioration, such as an increase in the unemployment rate, could lead to further increases in the level of delinquencies and, eventually, losses.
However, other jurisdictions have reported fairly stable delinquencies. Germany, for instance, is performing better than the rest of Europe, although showing slightly increasing delinquencies in some deals.
France, the U.K., and Italy are still showing a fairly stable performance in terms of delinquencies.
In Portugal, S&P reported that delinquencies in absolute terms are quite stable despite their increase as a percentage of the outstanding balance.
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