Downgrades in the term ABS market appear to be stabilizing, while upgrades have increased on a comparative basis, according to a new monthly ratings-action study published by Fitch Ratings. The inaugural edition of Fitch's Term ABS Credit Action Report incorporates commentary and analysis from Fitch's corporate and financial institutions group to keep investors informed of any recent rating actions that may impact their portfolios.
"The credit action report was designed to provide context to investors about credit-related events in the asset-backed market," said Fitch director Kevin D'Albert. "The report offers a comparative, single-source tool to measure credit rating volatility and for monthly credit news impacting various sectors in ABS," he added.
Despite the aggregate number of downgrades having increased on a year-over-year basis, the pace and severity of the negative ratings actions on tranches that had not previously been downgraded has slowed, the report found. The bulk of the downgrades within this 12-month review took place in April and May 2003, Fitch researchers noted.
In fact, Fitch reported just one outstanding transaction having experienced negative rating action in January - Golden State Tobacco Securitization Corporation, which had 42 classes of its 2003-B series downgraded due to California's fiscal deficit.
Meanwhile, the report lists five term ABS deal upgrades, representing 15 classes in January, focused primarily in the equipment and auto lease sectors. This is compared with 10 upgrades in the preceding month. Upgrades were assigned to three outstanding deals in the equipment-lease sector due to positive collateral performance and increased enhancement levels. In autos, upgrades were granted to two transactions based upon strong collateral performance.
Additionally, the term ABS market experienced no defaults in January. Of the 10 defaults in 2003, all were concentrated in the commercial finance sector, including aircraft, equipment-lease and franchise-loan sectors. Defaulted ABS bonds represented 0.18% of outstanding ratings in 2003, down from the 0.43% default rate seen in 2002. Fitch expects defaults to remain stable in 2004.
The rating agency assigned ratings for seven term new issues, representing 34 tranches in January, of which 26 were in the student loan sector.
In addition to providing credit ratings statistics by market sector, Fitch's monthly Credit Action Report (CAR) will list current presale reports, as well as related ABS credit research. Periodically, the CAR will include commentary on challenged deals or those on negative ratings watch.
Coverage of consumer ABS products includes auto, credit card, student loans and time-share receivables.