While ratings migrations for the third quarter of 2003 lacked much positive news, the outlook is decidedly positive, noted analysts on a quarterly review conference call hosted by Fitch Ratings last week. There were zero upgrades in the three-month period ending Sept. 30, according to Fitch, but with a few notable exceptions, analysts foresee positive ratings actions and increased issuance in some sectors - notably student loans and time-share receivables.
While collateral performance in the prime sectors of consumer asset classes has and will likely remain strong, managing director Mike Dean stressed that consumers' unwillingness to lighten their debt obligations threatens subprime sectors. "Until consumers are willing to clean up their balance sheets, the prospect of another downturn could prove overwhelming for many individuals and stressful for consumer ABS," he said.
Nowhere is this felt as much as in the credit card sector, where the outlook for subprime portfolios remains negative. The three main threats to subprime credit card transactions are the previously aggressive underwriting undertaken by issuers, combined with the subsequent lack of receivables growth, which are both magnified by any persistent economic underperformance, noted Rich Drason, a director in the credit card ratings group.
The two names most under the microscope - The Metris Companies and Spiegel's First Consumers National Bank - will be closely monitored in the coming months. Metris' performance is seen improving modestly in the near term, although challenges - maturing ABS, for example - may strain liquidity. Performance for the FCNB portfolio, on the other hand, is seen declining, as evidenced by the high number of late-stage delinquencies in the trust.
New issuance in the credit card sector, meanwhile, will continue to be dominated by prime issuers, who have adopted de-linked issuance vehicles and can issue opportunistically, primarily with floating-rate offerings.
The auto sector is seen remaining stable, although performance typically dips at year's end, noted Tom Nieliwocki, who added that in the auto sector Fitch plans to watch two names going forward: AmeriCredit Corp. and Mitsubishi Motors.
While Fitch remains cautious on AmeriCredit's collateral performance, there have been recent positive developments in the name. AmeriCredit has been successful in finding liquidity and returned to Financial Surety Assurance (FSA) as surety provider after a one-year hiatus. Also, AmeriCredit reached newly adjusted target enhancement levels within some series, allowing for the return of trapped excess cash to the parent. Fitch added, however, that newer-vintage transactions might breach similar triggers in the near term and once again begin trapping cash.
Mitsubishi, under pressure due to deteriorating performance of its deferred and balloon loans, is a company Fitch analysts "will keep a close eye on," Nieliwocki added.
As Fitch had noted in previous quarters' reviews, wholesale dealer floorplan securitization has increased and should continue doing so. The big news in the floorplan sector this year has been the expansion into non-auto-related collateral, such as the recent CNH dealer floorplan transaction.
Student loan ABS, one of the major sources of growth in 2003, will continue at its torrid pace for the next two quarters, as consolidation loan collateral drives the market. Of the $19 billion of student loan ABS that priced last quarter, more than 50% was of the consolidation variety. Already past record levels, volume is anticipated to hit the "mid-$40 billion" area, Fitch analysts said.
Another growth area seen by Fitch is the time-share receivables sector, which currently has four deals in the pipeline over the next two quarters, from up to four repeat issuers.
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